Aspen Philanthropy Letter

Congressional officials will spend the summer engaged in discussions with nonprofit and foundation representatives as they shape legislative reforms aimed at stemming abuses in the sector, according to a June 22 Senate Finance Committee hearing. The committee expects to introduce legislation in the fall. A discussion of possible reforms, many of which apply to all nonprofits and several specifically to foundations, were included in a lengthy discussion draft, which the committee issued a day before the hearing. Most of the reforms, including those calling for improvements to Forms 990 and stepped-up Internal Revenue Service enforcement, have been previously recommended by various organizations.

Though many of the proposed reforms are likely to be altered or removed after feedback, they include: prohibiting or severely limiting private foundations’ compensation of their trustees; requiring additional IRS disclosure from foundations devoting more than 10 percent of their total spending to expenses other than grants to nonprofits, as a means of discouraging non-grant expenses; waiving the foundation excise tax for foundations paying out more than 12 percent of their assets for grants, as a means of encouraging additional grantmaking; requiring all nonprofits to keep their travel expenses in line with the applicable U.S. government rate; and limiting compensation for top foundation officials to comparable pay in the federal government.

The Senators at the committee hearing seemed to be grappling with ways to determine how widespread the problems of abuse in the nonprofit sector are. Art Taylor of the BBB Wise Giving Alliance suggested in a conference call after the hearing that the public may need to nudge Senators to devote increased resources to government oversight of nonprofits since they may decline to do it without a push. In his prepared testimony  before Congress, Taylor also called for greater foundation funding to strengthen the overall nonprofit sector infrastructure so it can voluntarily better address issues of accountability, governance, and effectiveness.

2. STATE REGULATORS CONSIDERING SARBANES-OXLEY MEASURES FOR NONPROFITS; MORE STATE ASSOCIATIONS ESTABLISH CREDENTIALS

Also at the June 22 Senate hearing, New York State’s charity regulator, William Josephson, emphasized and affirmed the discussion draft’s recommendations to foster better coordination between federal and state regulators. Josephson is just one state regulator among at least 13 considering new laws for nonprofits modeled after Sarbanes-Oxley. The June 21 Business Week reported on the rise in scrutiny of nonprofits, which face allegations that the magazine said are "as unsavory as the charges leveled against Enron Corp." This article also reported on the growing interest of state associations of nonprofits in offering a voluntary credentialing process for nonprofits. This accreditation process is currently in place in Maryland, is being launched in five other states, and is being considered in 27 more. Enhanced self-regulation by the nonprofit sector could help satisfy lawmakers, according to Business Week.

Meanwhile, Mark Pacella of the National Association of State Charities Officials announced at the June 22 Senate hearing that his organization is working with Guidestar as part of a federal grant to produce a multi-state nonprofit data service. To be launched in preliminary form later this year, the Web-based resource should enhance the ability of states to regulate the sector.

3. FOUNDATIONS HAVE MADE ONLY MODEST CONTRIBUTIONS TO SOCIAL CHANGE AND ARE TOO DEVOTED TO SELF-PROMOTION, ACCORDING TO SCHOLAR WHO IS ALSO A FORMER GRANTMAKER

Foundations have been marginal rather than central actors in effecting large-scale social change, according to Kenneth Prewitt of Columbia University. Prewitt, who is also a former senior foundation staffer, was the featured speaker at a May 5 Hudson Institute forum, where 16 invited participants, drawn primarily from universities and think tanks, discussed Prewitt’s new paper, The Foundation and the Liberal Society. Prewitt’s key concerns about foundations: foundation annual reports are produced not in the interest of transparency but of self-promotion, with exaggerated claims of foundation impact; foundations only share their grantmaking success stories, so there’s no real way to assess their overall success rate; and continued rapid growth of foundations that last forever may not be the best way to spend the enormous wealth that this society has generated. Prewitt suggests considering a fixed life span for individual foundations: "It puts the money back into the society during the era in which it was extracted." Despite Prewitt’s criticisms of foundations, he concludes they serve an important social function in the U.S., "attach[ing] private wealth to public goods without encroaching on individual freedom."

4. FORMER FOUNDATION LEADER: NONPROFITS DON’T CRITICIZE FIELD’S POOR PRACTICES OUT OF FEAR, FOUNDATIONS OUT OF HABIT - TO DETRIMENT OF ALL

A culture of silence pervades the nonprofit sector, according to a former foundation leader, who identifies reasons why both nonprofits and foundations stay silent about poor practices in the social sector. Melinda Tuan, formerly of the Roberts Enterprise Development Fund, wrote in an article in the Summer 2004 issue of the Stanford Social Innovation Review, that power and fear keep nonprofits from speaking out against poor practices in the sector; they are even shy about calling on foundations generally to offer longer funding periods. According to Tuan, making such a plea implies criticism of nonprofits’ current funders, and as a result the funders may not support the nonprofits again. Tuan also says that foundation leaders minimize any possible negative press when talking about their grantmaking, so as to please their trustees. And foundations don’t criticize other foundations: "There’s a lot of whispering about poor foundation practice, but not a lot of naming names. It’s just not done," she writes. It’s a behavior that "wreaks havoc" on relationships between nonprofits, funders, and their boards, undermining collective charitable purposes.

Large foundations embraced evaluation not because they saw virtue in the endeavor but as a concession to their critics who claimed the funders have nothing to show for all their giving, according to Scott Walter of the Philanthropy Roundtable. Walter was one audience questioner at a discussion on philanthropy and civil society hosted by the Hudson Institute’s Bradley Center for Philanthropy and Civic Renewal. Bruce Sievers, formerly of the Walter and Elise Haas Fund, discussed his forthcoming book on the subject as well as a paper  released in advance of the May 17 discussion. But much of the discussion centered on concerns about the rise in evaluation in philanthropy. Both Sievers and fellow panelist Leslie Lenkowsky of Indiana University worried about increased efforts to quantify philanthropy through grant evaluations, rankings of the largest foundations, fundraising, and even, Lenkowsky suggested, "the digitization of the [IRS Tax Form] 990s." The numbers detract from what’s really important about philanthropy: what one does with one’s money and the effects it has, which are as much qualitative in nature as quantitative. Focusing too much on the numbers is analogous to "teaching to the test" in schools, according to Sievers; students only learn a piece of the story. And too much foundation evaluation is "foolish," the Roundtable’s Walter suggested, going on to say that "so much of what the big foundations do is foolish."

In the discussion Sievers - and for the most part Lenkowsky as well - called on foundations to collaborate to strengthen civil society and stem the declines in public trust and civil public debate and the weakening of a common civic identity.

6. TPI BOOK OFFERS ANALYSIS AND COMMENTARY ON PHILANTHROPY, WITH CHAPTERS FROM FORMER FOUNDATION LEADERS

In another paper, Bruce Sievers identifies five neglected issue areas, including civil society, mass media, and the political process, in which foundations could have "especially profound significance." He makes this argument in his contributed chapter of a new book from The Philanthropic Initiative. Edited by TPI’s Peter Karoff, Just Money: A Critique of Contemporary American Philanthropy  features contributions from 11 authors who have served as foundation leaders. The authors examine philanthropy’s future, recent past, and its present, a time when Karoff says it plays on a bigger stage than ever before and its actors are more serious in wanting to make a difference. All indications are, Karoff continues, that philanthropy is at the beginning of an extended period of increased media and public scrutiny. And foundations are less and less at the center of power in philanthropy, with many wealthy individuals forgoing foundations as vehicles for sustained giving, he says.

Karoff summarizes in his introduction many of the main points made throughout the book: all attempts to organize, strategize, and measure philanthropy are bound to be incomplete, because philanthropy is a messy science; the focus on quantifying and measuring results makes funders more risk adverse and less willing to take on the tough issues where success is hard to measure; and organized philanthropy has attitude and control problems, with foundation staffers not always treating people with respect and courtesy, and major donors too often exerting excessive and counter-productive control.

Other key arguments made in the book: 

• Bruce Sievers decries the import of business approaches to philanthropy, with its "seductively simplistic" focus on effectiveness and efficiency, which ultimately limits the field’s ability to effect lasting social change.

• Foundation transparency doesn’t really exist, and neither does serious analysis of even widely regarded successes in grantmaking, according to Joel Fleishman of Duke University, formerly of the Atlantic Philanthropies. As such, new grantmakers are forced to reinvent the wheel.

• The biggest hindrance to greater grantmaking success is foundations’ reluctance or inability to be imaginative and act boldly, according to Dennis Collins, formerly of the James Irvine Foundation and now at the University of Southern California.

• Foundations are not responding constructively to the crises of our times, which are international in nature, according to Peter Goldmark, formerly of the Rockefeller Foundation.

7. MORE FOUNDATION MONEY, NEW GOVERNMENT POLICIES NEEDED TO IMPROVE SOCIETY’S PROBLEMS, VENTURE PHILANTHROPY-FOCUSED REPORT SAYS

Just as a low-income housing tax credit helped stimulate major change and progress in the nonprofit housing subsector, new government policies are needed to make progress with other social problems such as health and human services and education. That’s according to a new report from Venture Philanthropy Partners and Community Wealth Ventures. The fourth report from these organizations in five years, High-Engagement Philanthropy: A Bridge to a More Effective Social Sector  updates and provides further insights into the maturing movement once trumpeted with fanfare as venture philanthropy but increasingly regarded as high-engagement philanthropy. It’s an approach, according to the report, in which funders are directly involved with their grantees, or investment partners, beyond financial support - and do so by working with fewer grantees and for longer periods of time than traditional funders. Based on dialogues with six high-engagement funders and their primary grantees, the report says that a lack of sufficient funding to build strong and healthy nonprofits is what keeps the sector from leveraging its assets and knowledge to improve and grow its most successful initiatives. Too often, grantees "seduce" donors by claiming a little funding will go a long way, but the report, stressing the need for greater general nonprofit support, suggests that in fact a little almost always goes only a little way.

8. SHOULD FOUNDATIONS BASE COMPENSATION ON PAY AT OTHER NONPROFITS? ONE TOPIC DEBATED AT STANFORD FOUNDATION GATHERING

It’s bad practice, both for foundations and for the whole nonprofit sector, for foundations to compare themselves only to other foundations in setting employee compensation, according to one foundation leader. Susan Clark of the Columbia Foundation participated in a discussion with 12 other Northern California-area foundation leaders about the thorny issue of compensation for foundation staff and trustees. The Summer 2004 issue of Stanford Social Innovation Review  features a transcript of the discussion, in which Clark said that foundation salaries should be in line with nonprofits - otherwise foundations are saying, ‘we’re not a part of you,’ thereby adding to the public’s confusion over the issue. But Bob Gamble of the Goldman Fund disagreed, arguing that foundations’ day-to-day work is different from the work at nonprofits.

Meanwhile, Kirke Wilson of the Rosenberg Foundation suggested that part of the reason the public doesn’t appreciate foundations’ societal contributions or their defense of generous compensation is the common practice of foundations’ shying away from taking credit for successful grantmaking, giving all the praise to their grantees. Wilson suggests that foundations should be more willing to be public about their activities.

American foundations have fallen far from their high ground of moral leadership with their refusal to respond to the world’s most serious refugee emergency, according to Molly Raiser. Raiser of the United States Association for U.N. High Commissioner for Refugees wrote an op-ed in the May 27 Chronicle of Philanthropy about the neglect of the current crisis in Sudan, which echoes that of Rwanda 10 years ago - just a little attention could have stopped much of the killing, she says. But unlike Kosovo five years ago, Raiser writes, foundations have not stepped up to offer support in Sudan or to push governments and the public to take action.

New Resource

Though it doesn’t include prolific, non-academic publishers, a new online bibliography of books does feature most of the major titles to have been published on the subject of nonprofits and philanthropy. This Association of American University Presses’ bibliography, which was compiled and will be regularly updated by University of Iowa’s Mark Sidel, breaks down books by nonprofit category, such as history, management, communications, and international perspectives. Due to AAUP policy, it doesn’t include books published by non-AAUP organizations such as the Council on Foundations or the Urban Institute, or the many data surveys and reports on the sector from the Foundation Center and elsewhere. It’s intended to help readers identify scholarly work on the sector, as well as to encourage AAUP presses to publish more in the area, according to a June 14 announcement.

Note to Readers

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