Report #123: May 2004

Philanthropy Information Retrieval Project

The U.S. Senate Committee on Finance will hold a hearing June 22 to explore current practices in the nonprofit sector, with an eye toward possible legislation. According to a June 1 release, the Committee will explore issues of governance and best practices in the sector through testimony from IRS and state officials and experts and practitioners in the field. A hearing witness list will be released later, along with other details.

Leaders of several foundations - particularly those featured in recent critical news coverage - may be asked to testify about executive compensation and other governance concerns, according to representatives of the Council on Foundations. At the Council’s annual conference in April, its government affairs team reported on possible upcoming legislative and regulatory activity, while first noting that debate about the foundation payout rate isn't likely to be revived this year. According to Council representatives, the Internal Revenue Service is set to begin its market-segment study of private foundations this summer, in which it will review the tax filings of several hundred foundations, paying particular attention to executive compensation. Regulators are also considering applying several elements of the Sarbanes-Oxley corporate reform measures, passed in 2002, to nonprofits, including requiring that a foundation's board and CEO review its tax return. They may also move to allow the IRS to remove board members.

And Sen. Charles Grassley (R-Iowa), one of the leading forces for nonprofit reform - and chair of the Senate Finance Committee - intends to make the IRS more aggressive in overseeing nonprofits, according to an April 19 article in the Des Moines Register. The newspaper reported that later this year Grassley will unveil a new initiative for charity reform that would have IRS oversight of nonprofits more closely resemble the Securities and Exchange Commission supervision of corporations.

2. FOUNDATIONS AND NONPROFITS SHOULD ADOPT ‘BEST PRACTICES’ BASED ON CORPORATE REFORM MEASURES, NONPROFIT LAWYER SUGGESTS

Because Sarbanes-Oxley measures for publicly-traded companies are increasingly being seen as a model for nonprofits, foundations and nonprofits should consider adopting "best practices" derived from them, according to a presentation in another session at the Council on Foundations’ annual conference. Douglas Varley of Caplin & Drysdale identifies these best practices in a Council session handout available only to Council members. These include: establishing an independent and competent audit committee, consisting of members not compensated by the organization; hiring an outside auditor that reports to the independent audit committee; establishing a conflict of interest policy governing transactions with directors and officers of the foundation; and instituting a formal complaint process for employees and a transparent process for reviewing these complaints.

3. FOUNDATIONS SHOULD ENCOURAGE ADVOCACY, NOT DISCOURAGE IT, ADVOCACY ADVOCATES SAY; IF NONPROFITS DON’T ADVOCATE FOR THEIR ISSUES, NO ONE WILL

Foundations have rarely, if ever, been audited because of involvement in lobbying activity, according to one expert on the subject, and in fact federal tax law does not require foundations to include lobbying prohibitions in grants, though many do. Nan Aron of the Alliance for Justice  stressed the importance of foundation support for advocacy during a session on the subject at the Council’s annual conference. Foundations, she said, misinterpret IRS prohibitions about their own institutional legislative activity to mean that they can’t encourage grantees to lobby, which in general terms they can do. Aron stressed the importance of offering general operating support to nonprofits, which allows nonprofits the greatest flexibility in lobbying activity. Aron added that foundations can legally give general operating support to nonprofits that lobby, so long as they don’t specify exactly how the money is to be used.

Also at this session, Kathleen Gwynn of the Steven & Michele Kirsch Foundation  discussed her foundation’s funding of advocacy. Gwynn suggested that foundations ask all grantees to provide documentation of their lobbying activity, not as a punitive measure but to encourage nonprofits to think about their necessary role in advocating for the issues about which they have expertise. One overriding theme of the session: if nonprofits and foundations don’t advocate for their issues and concerns, no one will, since politicians are loath to wade into complex or controversial matters on their own.

4. PUBLICATION CALLS ON ALL FOUNDATIONS TO CONSIDER SUPPORT FOR NONPROFIT ‘INFRASTRUCTURE’ ORGANIZATIONS, THE SECTOR’S ‘BACKBONE’

In recent years, foundation support has declined for the "infrastructure" organizations that support other nonprofits and seek to improve their effectiveness. According to Cynthia Gibson of the Carnegie Corporation of New York and Ruth McCambridge of the Nonprofit Quarterly, this lack of funding of the sector’s "backbone" threatens the stability of the nonprofit sector. The two are among a dozen or so contributors to a special supplement of the Nonprofit Quarterly focused on infrastructure intermediary organizations. Infrastructure organizations, according to the supplement, work at the local, state, regional, and national levels to provide management assistance for nonprofits, advocate for the nonprofit sector in public policy circles, and generate research-based information for and about the nonprofit sector. The 60-page supplement, which is specifically aimed at a foundation audience, features profiles and case studies about why some foundations fund these organizations, as well as a "map" identifying the most prominent national intermediaries (e.g., the Council on Foundations, the Foundation Center, Independent Sector, the National Council of Nonprofit Associations). Gibson and McCambridge urge all foundations to consider allocating at least a portion of their overall grantmaking for support of infrastructure organizations. Foundations and their grantees will be more effective if they can call on support from strong infrastructure organizations.

5. ANTI-TERRORISM RESTRICTIONS OF FEDERAL GOVERNMENT, FOUNDATIONS DRAW CRITICISM

Restrictions designed to prevent grant money from being used to support terrorism continue to receive criticism from the nonprofit community. Nonprofit and foundation representatives met with Department of Treasury officials to voice concerns about its government anti-terrorist funding guidelines, questioning their usefulness and their potentially negative impact on legitimate international charitable activities. Treasury officials said that the guidelines would be revised after receiving more nonprofit input, the May 3 OMB Watcher  reported. Meanwhile, the provosts of nine prominent universities have sent an open letter to the Ford and Rockefeller foundations, warning that their new anti-terrorism grant restrictions threaten academic freedom by inhibiting campus presentations of highly charged lectures or films. It’s "an invitation to a kind of censorious meddling," the May 4 Wall Street Journal quoted Columbia University’s provost as saying. Both foundations are discussing the matter with the university officials, the newspaper said.

6. UNIVERSITY LAUNCHES PROGRAM FOR FOUNDATION PROGRAM OFFICERS TO GAIN ACADEMIC CREDENTIALS

Joel Orosz, formerly of the W.K. Kellogg Foundation, will lead the first university-based program specifically geared to active foundation program officers. The Grantmaking School, part of the Dorothy A. Johnson Center for Philanthropy and Nonprofit Leadership at Grand Valley State University in Grand Rapids, Mich., is intended for experienced, practicing grantmakers. Essentially a credentialed seminar series, the School will launch its first course, Advanced Proposal Analysis for Grantmakers, in September. This initial course will be followed next year by Advanced Portfolio Development for Grantmakers. The courses will lead to a Certificate in Grantmaking Proficiency from the Johnson Center, where Orosz is a professor of philanthropic studies and director of the Kellogg Foundation-funded Philanthropic and Nonprofit Knowledge Management Initiative.

Why should today’s foundations exist into perpetuity when there is great need now and when history has proven that another generation of philanthropists will come along to replace the current crop? That, in essence, is the perspective of Daniel Peters of the Ruth & Lovett Peters Foundation, in a talk he gave at a Council on Foundations annual meeting session (information available only to Council members). Peters, board chair of The Philanthropy Roundtable, discussed his family foundation’s provisions for obsolescence in 30 years or less. He argued that it’s not known what problems will plague society 100 years from now, and cancer, AIDS, and obesity demand our attention now. "Limited life is liberating," he said, sharing one lesson he’s learned, since it creates a sense of urgency and encourages relevancy.

8. FOUNDATIONS SHOULD BE MORE INTENTIONAL IN COMMUNICATIONS ACTIVITIES, ACCORDING TO NEW PUBLICATION

That scholars, policy advocates, and foundation program officers don’t work together more frequently in communications in the public interest is a costly oversight in philanthropy, according to Susan Nall Bales and Franklin Gilliam, Jr., both affiliated with Brandeis University. Bales and Gilliam write in a new publication that too few foundations and nonprofits understand the fundamental influence the news media have on setting the public agenda and political discourse. For example, "when news frames public issues narrowly, as problems of specific peoples or groups, support for policy proposals plummets. When a media story highlights conditions and trends, by contrast, pubic support for policies to address the problem increases dramatically." This paper, Communications for Social Good, the latest from the Foundation Center’s Practice Matters Series, stresses the need for communications support to be built into all grants that seek to improve the social good, and for communications to be included at all stages of grant activity, not just in disseminating results. Communications activity should be intentional, Bales and Gilliam continue, by which they mean set within a broad framework and guided by clear goals

Several foundations with large endowments have recently been established around the country with the aim of using their largesse for solving, as one put it, "the largest of the world’s problems." Bok Im Hwang, a citizen of South Korea, is establishing the Hwang Global Foundation in Utah with upwards of $1 billion, according to the May 6 Deseret Morning News. The foundation, to become active by the end of the year, plans to fund nonprofits around the world working in the areas of medical research, education, and cultural and economic projects, the newspaper reported. The May 19 National Geographic News reported on developments at the Kavli Foundation, formed several years ago with $100 million by Fred Kavli, a Norwegian engineer who the news service article reported aims his grantmaking to support science for the benefit of humanity. The Kavli Foundation funds academic institutes in the United States and Europe working in the areas of nanoscience, neuroscience, and cosmology.

Also in the past month, the Google Company pledged to create a new foundation from 1 percent of the proceeds of its coming public offering, which the May 1 San Jose Mercury News reported would, at conservative estimates, create a $30 million foundation. Though the foundation is still largely unformed, Google founders Larry Page and Sergey Brin said that they will dedicate it to "ambitiously apply innovation and significant resources to the largest of the world's problems," according to the article.

Meanwhile, Pierre M. Omidyar, the founder of eBay, has decided to fold his current foundation into a new operating public charity called the Omidyar Network that will give away the bulk of his $10 billion fortune. The April 15 Chronicle of Philanthropy reported that the Network will not just pursue charitable giving, but also engage in public-policy advocacy and provide investment and start-up capital to businesses that promote social change.

10. TWO SURVEYS ADDRESS ISSUES OF EFFECTIVE GRANTMAKING: ONE FINDS DISCREPANCY BETWEEN FOUNDATION BELIEFS AND PRACTICES; OTHER OFFERS INSIGHT INTO GRANTEE PREFERENCES

Far less than half of all foundation respondents in a new survey identified the reason to conduct grantmaking evaluations as strengthening organizational practices in the field or contributing to knowledge in the field - which may help explain why less than one in five make their evaluations public. Further, only 14 percent of independent foundations and 33 percent of corporate funders believe it’s "very important" to publicize the foundation and its work. Francie Ostrower of the Urban Institute’s Center on Nonprofits and Philanthropy released last month findings from her report, Attitudes and Practices Concerning Effective Philanthropy. In it, Ostrower observes that "there’s a level of insularity in the foundation world that seems ill-suited to institutions that…exist to serve some wider public benefit." The survey also highlighted contradictions in proclaimed foundation values and actual practices; for example only 32 percent of foundations who view it important to solicit outside advice actually convened outsiders to inform foundation activities, and 62 percent of them had not solicited grantee feedback.

Anonymous feedback from grantees of 30 large private and community foundations formed the basis of a report the Center for Effective Philanthropy  released last month. Listening to Grantees: What Nonprofits Value in their Foundation Funders identified three key dimensions nonprofits most value in their funders, based on its survey: fair and responsive interaction; clear and consistent articulation of objectives; and the understanding of fields and communities of funders, and the ability to advance knowledge and affect public policy.

The Center’s report thus highlights ways that foundations can be helpful to grantees beyond simply distributing money. However, in a pull-no-punches letter to the editor in the May 27 issue of the Chronicle of Philanthropy, Jeff Krehely of the National Committee for Responsive Philanthropy suggests that the Center’s report may not have adequately captured the strong opinions that grantees have about the amounts of money they need from foundations to do their jobs effectively.

11. FOUNDATIONS SHOULD COLLABORATE TO BETTER DEFINE, EVALUATE NONPROFIT CAPACITY BUILDING EFFORTS, NEW PAPER RECOMMENDS

Foundations should collaborate in building nonprofit capacity by first developing a clear, widely accepted definition of what nonprofit capacity building means, according to one foundation executive. Barbara Kibbe of the Skoll Foundation and a founder of Grantmakers for Effective Organizations offered a "Funder’s Response" to an intellectual framework developed by Paul Light and Elizabeth Hubbard, both affiliated with the Brookings Institution. Light and Hubbard wrote The Capacity Building Challenge, a new paper in the Foundation Center’s Practice Matters Series that aims to develop a strategy for evaluating the effectiveness of capacity building efforts in improving program outcomes. Light and Hubbard also call for greater clarity on the subject, but Kibbe points out that it’ll take years to collect and analyze the data to do that conclusively. Still, Kibbe says that foundations should develop common definitions of nonprofit effectiveness and organizational capacity, and co-fund evaluation of their individual and collective efforts with a commitment to sharing lessons learned with the field as a whole.

Of Related Interest

In addition to funding traditional scientific research projects, the Alfred P. Sloan Foundation is aiming to reach a wide, non-specialist audience by underwriting books, television and radio programs, films, theater productions, and Web sites, according to the May 4 New York Times. The foundation’s newest efforts in its Public Understanding of Science and Technology program  include two new Hollywood-bound screenplays: "Face Value," about actress Hedy Lamarr, who helped pave the way for wireless Internet and cell phones; and ''The Broken Code,'' about Rosalind Franklin’s role in the discovery of DNA’s double-helix structure.

Alliance for Nonprofit Management Announces Details of Its Annual Conference

The Alliance for Nonprofit Management will hold its annual conference  August 12-15 in Washington, DC. The conference, "Empowering the Nonprofit Sector," is designed for consultants, grantmakers, policymakers, researchers, and nonprofit leaders interested in capacity building.

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