1. IRS MAY REVIEW NONPROFITS' COMPLIANCE WITH TAX LAWS; SURVEY OF FOUNDATION EXPENSES SUGGESTS SUCH A REVIEW IS WARRANTED

A new survey suggests some foundations are not in compliance with tax laws, an issue of concern to the U.S. Internal Revenue Service. Tax Analysts' June 13 EOTR Weekly reported that IRS Commissioner Mark Everson is considering a rigorous review of nonprofits' tax returns, similar to the examination of returns from individuals and corporations that the IRS is now completing. According to the newsletter, Everson floated the idea at a Washington conference in June but stressed that any such research initiative would need to be weighed against IRS's other priorities.

The view that foundations need to do a better job of complying with existing reporting requirements finds support in a new survey by the Center on Nonprofits and Philanthropy at the Urban Institute, the Foundation Center, and GuideStar. Their new report, which analyzes giving in 2001 by the 10,000 largest foundations, notes in its conclusion that while many foundations do provide required information about their activities and expenses, others do not. Supported by the C.S. Mott and Ford Foundations, Foundation Expenses and Compensation: Interim Report 2005 found that roughly four in five foundations paying compensation to staff or trustees reported that their compensation payments amounted to less than 10 percent of giving. But staffed foundations spent "substantially higher percentages" of qualifying distributions on charitable operating and administrative expenses -- and 14 percent of staffed foundations had expenses of at least 20 percent. The final study, to be released later this year, will consider additional characteristics, such as staff size and the number and size of grants awarded, that affect foundation expenses.

2. CURRENT PAYOUT DEBATE OVERLOOKS IMPORTANCE OF MATCHING PAYOUT TO FOUNDATION MISSION, ACCORDING TO NEW ANALYSIS

The payout rate debate has been too narrowly focused on what the legally mandated percentage should be rather than on how best to link foundations' spending to their mission. That's according to a new discussion paper providing a detailed and balanced analysis of the issue of foundation payout, a "highly complex issue" with "no easy resolution." The Nonprofit Sector Research Fund of the Aspen Institute released this report, Money, Mission, and the Payout Rule: In Search of a Strategic Approach to Foundation Spending, written by former Chronicle of Philanthropy editor Thomas J. Billitteri. Billitteri writes that every foundation, with input from its donors, trustees, and staff, should candidly consider the question of its own perpetuity and whether or not it makes sense to limit the foundation's life span to better achieve its mission; whether spending more money now would be more valuable than saving it for later. The report will frame a discussion among foundation and nonprofit leaders and scholars at a future Aspen Institute forum.

3. GEORGETOWN PANEL: WAR ON TERROR HAS HAD 'CHILLING EFFECT' ON FOUNDATIONS AND NONPROFITS

The very nature of the nonprofit sector might be changing as a result of the War on Terror, which has had a "significant chilling effect" on nonprofits and foundations, according to a June 14 Georgetown University discussion. The discussion's moderator, Teresa Odendahl, a visiting scholar at Georgetown and chair of the liberal National Committee for Responsive Philanthropy, worried that nonprofits are becoming so risk-averse that they avoid engaging in controversial work not deemed sufficiently in line with U.S. government interests. Most of the discussion, a transcript of which is available online, focused on specific repercussions for Muslim charities of the Treasury Department's Voluntary Guidelines and terrorist watch lists, which no panelist defended. Few foundations and nonprofits are resisting or advocating against these practices, according to Odendahl, suggesting that foundations are not exercising their political influence.

Georgetown professor David Cole reported difficulty in getting foundations to sign on to a legal brief that simply argues for basic constitutional rights for Muslim charities. That's troubling, he said, because the principles at stake, such as free speech and free association, protect a broad range of interests. If these rights are not defended, both Muslim and non-Muslim charities will suffer.

4. EFFORTS TO CURTAIL NONPROFIT ADVOCACY DISCUSSED AT FORUM; PANELIST CALLS FOR A NEW ISTOOK AMENDMENT

Although the Istook Amendment, which would have limited the advocacy activities of federal grantees, failed to pass Congress in the 1990s, it was a "superb measure" and should be enacted in the next few years according to Terrence Scanlon of the Capital Research Center. Scanlon was one panelist at a July 19 discussion organized by the Hudson Institute's Bradley Center for Philanthropy and Civic Renewal. Befitting its intentionally provocative title, When Nonprofits Attack: Nonprofit Organizations as Political Advocates, the discussion was a contentious one between panelists with different political views. (A transcript will be posted to the Center's web site soon.) Both Jeffrey Berry of Tufts University and Gary Bass of OMB Watch argued that it was precisely measures like the Istook Amendment as well as a continuing pattern of intimidation by conservatives -- Berry called it a "war on nonprofits" -- that has kept nonprofits from advocating as much as they legally can. Bass says the nonprofit sector should build alliances with the business community to make an increasingly fiscally strapped federal government more effective in meeting social needs.

5. NEW ANTI-JARGON BOOK: FOUNDATIONS AND NONPROFITS WILL ACHIEVE GREATER IMPACT BY COMMUNICATING MORE CLEARLY

Democracy is stunted by an increasingly lopsided civic conversation in which conservative foundations and nonprofits have mastered the art of clear, impassioned discussion and everyone else has yet to catch up. That's according to the third and last book on jargon and bad writing published by the Edna McConnell Clark Foundation. Tony Proscio writes in When Words Fail: How the Public Interest Becomes Neither Public Nor Interesting that nonprofits and foundations turn to jargon and a vague style of writing in part to avoid offending anyone. Jargon allows a writer to speak for everything and against nothing, Proscio says, but it does so at a terrible cost: "forfeiting all hope of interesting anyone who isn't already interested." Foundations and nonprofits should take the time to think carefully about their ideas and their work before talking about them to those outside their inner circles, Proscio suggests. They should ask themselves two key questions before writing: "Who's going to do what to whom for how much?" and "What are we against?"

The Edna McConnell Clark Foundation has also established a Jargon Files section of its Web site, which includes a "Jargon Finder Dictionary" for easy reference and a section called "Tony Proscio Responds," where Proscio will respond to readers' suggestions about additional words and terms that foundations and nonprofits should consider avoiding.

6. PHILANTHROPY SHOULD BE LESS LIKE GOVERNMENT AND MORE LIKE BUSINESS, ACCORDING TO ECONOMIC JOURNAL

The Project for New Philanthropy Studies at Donors Trust seeks to "elaborate an alternative approach to the philanthropic enterprise," according to its description in the publication Conversations on Philanthropy Volume I: Conceptual Foundations. And that approach, the project's director Lenore Ealy suggests in a separate publication, is predicated on the notion that philanthropic activity has more in common with the dynamic creativity of the marketplace than it does with the bureaucratic order of government. Ealy was a guest editor for the June issue of the U.K.-based, academic journal Economic Affairs, which can be purchased online. Her opening essay asserts that a reappraisal of the ends and means of philanthropy that are appropriate for the 21st Century is "overdue." In contrast to the "professionalized bureaucracies of the 20th Century," in which responsibility for aiding the poor was largely centralized, Ealy argues that effective and positive social change in the future will increasingly derive from those blurring the lines between philanthropic and entrepreneurial, commercial activity. Further, she argues that a critical social function of philanthropy is to extend the social and economic benefits of free institutions such as markets and the rule of law.

The lead essay in Ealy's series of articles in Economic Affairs is an analysis of the microfinance sector. Emily Chamlee-Wright of Beloit College offers do's and don'ts for foundations in supporting micro-credit programs, but she suggests the largely nonprofit micro-credit field should become more commercial in its orientation to help it best fulfill its social mission.

7. TODAY'S PHILANTHROPY BEHAVES 'SELFISHLY' BY DEVALUING GIVING BY ORDINARY PEOPLE, PROFESSOR SAYS

Philanthropy's ultimate goal should be to expand philanthropic activity by promoting sharing and enhancing the ordinary person's ability to give, not to put itself out of business by eliminating the need for philanthropy, according to Richard Gunderman of Indiana University. Gunderman writes in a new publication from the Project for New Philanthropy that philanthropy ends up behaving "selfishly" if it only aims to make itself bigger and stronger by accumulating more resources and enhancing the scope of its programs. This diminishes the possibilities for individuals and communities to participate, he writes in Conversations on Philanthropy Volume II: New Paradigms. Today's philanthropy has deepened the divide between givers and recipients, expanding the ranks of the latter, by reducing the practice to quantitative measures. Attention and praise are heaped on those individuals transferring the largest sums to charity pursuits and those organizations having the largest budgets. The importance of character is not emphasized in today's scientific philanthropy, according to Gunderman, who suggests a new paradigm he calls "liberal philanthropy" is needed to help reduce egoism in society.

8. ONE FOUNDATION'S 'RESPONSIVE GRANTMAKING' LEADS TO GREATER FLEXIBILITY, SUPPORT FOR ESSENTIAL NONPROFITS

The California Wellness Foundation has engineered a "sea change" in its grantmaking approach to grantmaking, and now balances its older, "proactive" grantmaking strategy with a simpler, responsive approach. Through its new Responsive Grantmaking Program, which was adopted three years ago, the foundation works far more in tandem with its grantees than before, when its grantmaking supported foundation-originated and foundation-driven initiatives and separate large-scale evaluations of its work. Now, the foundation welcomes unsolicited proposals from nonprofits, offering chiefly core-operating support to those that have good ideas of how their support will help further their missions. According to the opening message by the foundation's Chair Douglas Patino and President Gary Yates in its just released Annual Report 2004, the foundation believes that with its new approach it is more flexible and better able to support "the essential efforts of nonprofits working to improve the health of underserved Californians."

9. BOOK: FOUNDATIONS' SUCCESSFUL PUSH FOR DIVERSITY WAS MORE A RESPONSE TO CONSERVATIVE POLITICS THAN TO DEMOGRAPHIC CHANGES

In the decades after the civil rights movement, foundations helped quietly transform U.S. race relations by promoting diversity and inclusive practices. And, this push for "philanthropic pluralism" was a response to the ascendancy of conservative politics far more so than it was a reaction to changes in demographics or actual increased cultural diversity in society. That's according to a book by Jiannbin Lee Shiao, a sociology professor at the University of Oregon. Based on his review of two community foundations and the Ford Foundation, Shiao reports in Identifying Talent, Institutionalizing Diversity: Race and Philanthropy in Post-Civil Rights America, published by Duke University Press, that foundations' diversity policies began as a movement to put a protective spin on affirmative action and other explicitly racial policies under assault by conservatives. The "post-Black discourse" that foundations helped spark took root especially after Ronald Reagan was elected to a second term as President in the mid-1980s, Shiao says. And this pursuit of diversity is one of the rare areas in which today's foundations have influenced public policy in the way their predecessors did half a century ago.

10. FOUNDATIONS STIR CONTROVERSY IN HELPING ESTABLISH ISRAEL STUDIES PROGRAMS AT COLLEGES, NEWSPAPER REPORTS

In the past decade, American Jewish philanthropists have helped to establish Israel studies programs at American colleges to counter what they see as limited scholarly analysis of that country, according to the June 24 Chronicle of Higher Education. The newspaper reported on several foundations' controversial efforts to shift academic focus on Israel from one centered on current political affairs about the Israeli-Palestinian conflict and the Middle East in general to more historical and cultural analyses of the Jewish state. These donors consider too many current Middle Eastern studies programs to be biased against Israel. The article, subscription required, raised questions, though, about whether these donors' support, instead of working to balance scholarship, is creating a bias of its own toward Israel. It also quoted one Middle Eastern studies official suggesting that Israel is already over-emphasized in the academy, especially in light of its small size.

Related Reading

Foundations Should Periodically Debate Perpetuity Vs. Spending Out, Publication Says
The National Center for Family Philanthropy recently released a publication that calls on foundations to debate, at least periodically, the merits of continuing into perpetuity or spending out. Alternatives to Perpetuity: A Conversation Every Foundation Should Have, which can be purchased online, offers many examples of family foundations that are in the process of spending down -- or have already spent down -- their assets. Even foundations choosing to exist in perpetuity can learn from expiring foundations, according to the publication. For example, perpetual foundations could experiment with flexible payouts, spending more aggressively for limited periods and then cutting back, to see if they might have greater impact.

New Resource

Report Offers Guide for Funders Interested in Nonprofit Leadership Development
Grantmakers for Effective Organizations reports that there is growing interest in grantmaking for nonprofit leadership development because of increased calls for accountability; because the sector itself has grown and become more professional and competitive and under more scrutiny; and because a labor shortage is imminent, as the baby boom generation prepares to retire. GEO published Investing In Leadership Volume 1: A Grantmaker's Framework for Understanding Nonprofit Leadership Development as an informative first step for grantmakers interested in leadership as an organizational development strategy. Very little of what is known about developing effective leaders is specific to the needs of nonprofits, and the report offers suggestions on how funders can help rectify that. GEO will release a second volume on the subject later this year that offers additional ideas through profiles of grantmaker-supported, leadership development programs.