Transparency Talk

Category: "Board Governance" (4 posts)

Part 2: Top 10 Lessons Learned on the Path to Community Change
June 25, 2013

(Robert K. Ross, M.D. is President and CEO of The California Endowment. Yesterday he shared three aha moments from the Endowment’s first two years of work in its Building Healthy Communities plan.)

Ross-100Okay, at times I step back and look at the BHC initiative and wonder—could we have made it more complicated? 14 sites. Multiple grantees in each site. A core set of multiple health issues. Multiple state-level grantees. And the expectation that the parts will add up to something greater and catalyze a convergence that builds more power and leads to greater impact.

But then again, supporting an agenda for social and community change does require multiple strategies, operating in alignment: the use of data, message framing and story-telling; innovative models; a variety of influential messengers; convening and facilitating champions; “grassroots and treetops” and coordination; meaningful community engagement. Power-building requires multiple, aligned investments.

Our Top Ten Lessons for Philanthropy

Finally, I want to share some lessons with partners in philanthropy regarding planning and implementing a community-change initiative. As we engaged in the planning process of BHC, we tried in earnest to stick by a key aphorism, one I learned from colleague and mentor Ralph Smith at the Annie E. Casey Foundation: make new mistakes.

The track record of community change work by philanthropy is not a work of art. Tapping into the wisdom of institutions such as the Aspen Institute, the Annie E. Casey Foundation, the Hewlett Foundation, the Skillman Foundation, the Marguerite Casey Foundation, and the Northwest Area Foundation, we incorporated the lessons of success and struggle from our colleagues in the field. Learning from these and other colleagues, we were able to avoid hitting major rocks as our BHC ship sailed out of harbor. So, we learned the following:

Community engagement in planning processes will be simultaneously exhilarating and messy.

1. Take time to plan, and plan to take the time. We embarked on a 9 month community engagement process in the 14 BHC sites, and we ended up taking 12-15 months. Nobody died, and nobody got fired. Community engagement in planning processes will be simultaneously exhilarating and messy. If it is going too smoothly and too well, then something may be terribly wrong – like the possibility that a foundation is not receiving candid, meaningful input from local leaders. If it is bumpy and messy and getting to consensus, and clarity is taking much longer than originally planned, it may very well mean that you are gaining the trust of leaders to raise thorny, difficult issues. As a general rule, we just took the time that was needed for local leaders to develop their local BHC plans, and we did not pit BHC sites against one another to race by the foundation’s clock. Community leaders want a compass more than they want a clock.

2. Don’t lead with the money. The issue of whether to announce “how much” the dollar commitment is in a foundation initiative is a tricky path. On the one hand, a major dollar-commitment announcement by a foundation can provide excitement, anticipation, and mobilize civic and community support. On the other hand, “leading with the money” can instigate all manner of posturing, control issues, manipulation, and political grantsmanship among potential grantees. We decided to quietly announce the breadth and scope of our commitment -- $1 Billion over a ten-year period in local and statewide policy funding – but veered away from formally announcing precise budget commitments in each site. In other words, we wanted to send a message that our commitment was serious without leading the conversations with grant dollar puppetry.

3. Date logic models, but get married to learning. There is no doubt that engaging in the disciplined exercise of how you think – and how community leaders believe – positive change and results will happen is a sound practice. But it is also important to recognize that community change and positive results in the context of complex social and political systems often defy tidy, linear models. If you want to get married, it is wiser to commit to the process of active, dynamic, real-time learning. We provided logic model training for leaders in the 14 BHC sites, with varying levels of effectiveness across the sites; we have been clear, however that learning is not optional, either for grantees or our own program staff.  

4. Be transparent about desired results. There are written and unwritten axioms about the need for philanthropy to be completely community driven in community-change work. Our experience is that this thinking is a truism without being entirely true. For starters, our foundation is legally chartered as a health foundation, and although we employ a broad definition of the word “health”, there are limitations and constraints about what we can and cannot fund. This issue led to some considerable tensions within the foundation (at the board and staff level), as well as with grantees and stakeholders, about prioritized community needs that were outside the scope of our health mission. The most obvious and recurrent tension-generating themes, in the context of a pervasive economic recession, were issues of economic development, job creation, and mortgage foreclosure across the sites. The battles over if and how we should enter “the space” of economic development as a health foundation were intense and emotional. We ultimately landed on a framework (utilizing mission-investing in our investment portfolio) for how to move forward without “mission drift”, and have been communicating our approach to our own program staff and stakeholders, but it has not been easy. But the worst of all worlds would have been to promise community leaders a course of action that we would either abandon or renege upon later on. We decided to stick to our mission and results (the right move, however discomforting for foundation-community relations).  

5. Be dogmatic about the results, but flexible about the strategies. The work of community change is noble, but funders cannot afford to fall in love with the process of the work at the expense of meaningful results and impact. Once community leaders and funders agree on a set of outcomes, objectives, or results, these must represent the “true north” on the compass. In the BHC planning and early implementation, we gave community leaders and organizations in the BHC planning process a blank slate on strategies, but insisted on being results driven and logic-model supported. The good news is that across our 14 BHC sites, there is community and resident ownership about the priorities and the strategies to achieve healthier community environments for young people. While these strategies vary, we are seeing growing convergence as the sites engage and learn from one another.

6. Listening is a form of leadership. Irish poet David Whyte underscores the importance of “leadership through conversation.” We have been quite intentional about active listening at all stages of the planning and implementation, and being mindful of closing the feedback loop with community leaders and grantees. We utilized a fairly simple “what we said, what they said, what we heard, what we’ll do” format. At the conclusion of the one-year planning process, our past Board Chair (Tessie Guillermo) and I co-authored and co-videotaped messages to the 14 sites summarizing the key themes and priorities we heard from community leaders in the sites, and what to expect in support from our foundation in the months ahead. We have now begun to bring site leaders together twice annually with foundation staff, so that leaders and staff can share stories of progress, struggles, and inspiration. All of this in service of the all-too critical “t-word”: trust. Trust is the mother’s milk of community change efforts by philanthropy, and active, engaged listening is the foundation.

7. Make “patient” grants, and “urgent” grants. Investors engaged in place-based, community change efforts encounter several tensions to manage. Among them is the tension of patience versus urgency. As efforts such as the Harlem Children’s Zone, Market Creek Plaza in Southeast San Diego, the Skillman Foundation’s work in Detroit, and the Dudley Street Initiative in Boston have demonstrated, positive community change takes time. A two- or three-year grant just won’t do it, and most successful efforts require 7, 10, or 12 years of “patient money.” The most thoughtful investments on this front involve leadership development, organizational capacity building, and collaborative efficacy; but “impact” yield from these investments will typically take years to bear fruit. “Urgent” money involves investing in short-term campaigns or capital projects where tangible results are realized within 12-18 months. Community change, place-based philanthropy will require both types of investments, and too heavy a bias or tilt towards “patient” investments will leave the investor and the partnership vulnerable to allegations that some money has been spent, some meetings have occurred, but nothing “tangible” has been produced. As a result, confidence in the effort will dissipate. Our BHC effort in the early going has been appreciative of the need to simultaneously make “patient” and “urgent” (which we also call “early wins”) grants.

8. Story-telling is part of the doing. The two-most under-appreciated and under-invested themes in social-change philanthropy are power-building and story-telling. Having been at the helm of a large-asset foundation for more than a decade, I am guilty-as-charged on this front; in retrospect, I would gladly trade in half of the (often expensive) academic and research-oriented reports we have commissioned in my twelve years as CEO for more compelling, interesting, and impactful “stories” of community-level change that illuminate the path towards a healthy, more vibrant community. Story-telling by community leaders, youth, or community-based organizations can be powerful tools on multiple fronts: local residents and youth experience the power and passion of their own voice; local media are inspired to re-tell the story in a way that scales up the audience; policymakers pay greater heed and attention to the issue being raised; civic engagement and participation is served; cynicism, disengagement, and disempowerment are reduced. Utilizing multiple forms of story-telling, from social media to flip-cam videos to traditional approaches, we have been assertive in support of community leaders and youth on this front, and it has been inspiring to witness.

Why build, preserve, and protect our respective brands and reputations if we are not going to spend it? Spend that damn brand.

9. Spend the damn brand. Institutional philanthropy is risk-averse. We tend to worry and fret about how our institutional brand, reputation, and civic standing might be sullied by associating with potentially controversial efforts or organizations, and as a general rule, we keep our heads and our profile low. But we have discovered, in the early years of the BHC effort, that thoughtful, surgical application of our civic standing and reputation matters to community leaders – and that they want us to spend “it” on their behalf. Sometimes it comes in the form of convening a meeting, writing and placing an op-ed, placing a phone call to a civic leader, or taking out a full-page ad on an issue in the local newspaper. We have done this with regards to healthy food options for youth and families, health insurance coverage for the uninsured, gang prevention and intervention strategies, and school health efforts. There is a school of thought among philanthropy that our job as funders is “to make the grant and get out of the way.” We would argue that our job is to achieve our respective missions, and by any means necessary. On occasion, this requires stepping out of character on behalf of grantees, and utilizing our voice as well. Why build, preserve, and protect our respective brands and reputations if we are not going to spend it? Spend that damn brand.

10. A Highly Engaged Board. In the earliest planning stages of BHC with our Board of Directors, the Board made it clear that they understood the value and importance of a ten-year commitment, but they also made three points clear. The first was the importance of honesty, candor, and trust about the progress of the effort. The second was a complete commitment to an evaluation approach framed by “learning through impact.” And thirdly, they wanted to be engaged for the purposes of learning, and governance, but not micromanagement. We accomplished the latter by organizing our quarterly Board meetings in or near a BHC community site at least three times a year, and each Board member accepted an assignment of one community site for more in-depth and richer learning. Board members share their observations over dinner at our Board meetings.

In closing, we have found the work of community change to be an exhilarating journey in pursuit of our health mission. We have gained an appreciation of the importance of the “right brain-left brain balance” in this work: having a Theory of Change, and Logic Models, and metrics are important, but trust-building, power-building, and the spiritual dimension of the work constitutes the real glue to hold partners and relationships together over the long haul. And finally, a special note of thanks and appreciation to those foundations who have traversed this path before us, sharing tidbits of lessons and wisdom so that we can “make new mistakes” in the battle for community improvement and health justice.

--Robert K. Ross, M.D.

Board Compensation in Grantmaking Foundations: Reasonable and Necessary?
February 19, 2013

Mark Hager is associate professor of nonprofit studies in the School of Community Resources and Development at Arizona State University. He teaches a graduate course in philanthropy each spring semester.

Hager_100Tradition dictates that board members work for free in most quarters of the nonprofit sector, but that isn’t necessarily true for grantmaking foundations, especially independent ones. In a new paper (open access available until late March) published in Public Integrity, the ethics journal sponsored by the American Society for Public Administration, Elizabeth Boris and I consider the question of what varieties of grantmaking foundations compensate their board members for governance duties. It reboots and reframes an earlier analysis conducted by the Urban Institute, the Foundation Center, and GuideStar.

In the paper, we point to several interesting examples, including a very large foundation’s generous policy of trustee compensation spelled out in its organizing documents, another with seven-figure annual compensation paid to a bank to act as a very part time “institutional trustee,” and another that underwent IRS investigation for eye-popping compensation that essentially amounted to trustees looting a charitable trust. These cases aren’t typical, but they are part of the big picture of how work gets done in grantmaking foundations and how much insiders gets paid to do it. In more typical cases, foundations might have justifiable reasons to compensate board members, including to ensure representation from beneficiary populations or to extend health insurance benefits to family founders. It’s the extreme cases, however, that threaten to color all of philanthropy.

Compensation for governance duties is perfectly legal, so long as it falls under the IRS’ broad standard of “reasonable and necessary.” The practice is pretty rare in community foundations, partly due to the fact that they rely so heavily on public contributions and are therefore subject to public scrutiny. It also appears to be fairly rare in corporate foundations, but that may largely be due to the fact that many corporate foundation trustees get paid as corporate executives, making their compensation invisible on the foundation side. About one in five independent foundations, however, appear to report compensation of their board members for governance duties, as reported on Form 990-PF. 

The practice is always concentrated in larger foundations. Of the 10,000 largest U.S. foundations that are the subject of the study, more than half compensate no one, including any staff. Most foundations are small and get their work done by family volunteers. Foundations that compensate staff members are more likely to compensate their board members. However, for the typical foundation, board compensation levels are imminently reasonable. The median individual board member compensation in independent foundations is only about $8,000. That’s not an indication of a rampant problem.

However, a few bad apples always threaten to spoil the bunch. The median may be $8,000, but the mean was $15,700 due to a number of well-compensated apples. When a board member’s one-year compensation reaches $200,000 (this happens), or a bank trustee is compensated $1,000,000 to spend a few hours a month managing investments (noted above), or aggregate board compensation in a given foundation exceeds its grants in a given year (this happens too), we might rightly ask whether compensation has exceeded what is “reasonable and necessary” for governing the foundation’s mission. Also, $1,000 here and $100,000 there adds up to real money, to the tune of more than $100,000,000 paid out to foundation board members in a given year. People hear that and start asking why that money isn’t being allocated to community nonprofits instead.

Who is going to check to see if board compensation is reasonable and necessary? For many organizations in the nonprofit sector, the general public is the first regulator. Service providers and advocates, especially those that rely on public contributions, reign in compensation and overhead costs due to public pressure. This is not the case with independent foundations, however, since they are not beholden to public contributions. Since the general public has no skin in the private foundation game, that public tends to ignore them.

A second regulator candidate, then, is government. Certainly, the IRS can prosecute private foundations that exceed the vague “reasonable and necessary” standard. Thing is, they don’t, at least not very often. For one thing, identification of board member compensation is very difficult on Form 990-PF.  For 2008, the IRS revamped Form 990 for public charities so that compensated individuals are identified as board members or employees. No similar revamp happened to Form 990-PF, where administrative and governance duties are conflated. Picking out board members working on governance duties is tricky; board compensation must be inferred from titles or numbers of hours worked, if reported. So, board compensation is not always obvious on the federal form. Even when unreasonable or unnecessary compensation appears evident, the IRS is often unwilling to take on community elites with deep pockets.

The third regulator, maybe, is private foundation executives and board members themselves. That’s one of the ideas underlying Glasspockets: private foundations will regulate themselves when practices are transparent. Private foundations certainly do not need to eradicate the practice of compensating board members for governance duties. However, when outliers cause observers (like me) to raise their eyebrows, the whole field can get painted as out-of-touch with community needs. Maybe Glasspockets can plant a stake in the ground on this issue to encourage foundation leaders themselves to openly disclose this information as a best practice. Voluntary and widespread disclosure of board member compensation, venues for discussion, and bright lights on questionable practices can help stem criticism of compensation that is “reasonable and necessary” for carrying out the exempt purposes of grantmaking foundations. 

Everyone benefits when somebody, somehow, enforces the “reasonable and necessary” standard. Grantmaking foundations will keep better faith with their local communities. Regulators will be able to concentrate on more worthy offenses. Nonprofits will benefit from resources that are otherwise diverted into trustee pockets. Win, win, win.

-Mark Hager

The Archives of U.S. Foundations: an Endangered Species, Part 2
January 14, 2013

John E. Craig, Jr., is Executive Vice President & COO of The Commonwealth Fund. He recently presented at a Philanthropy New York event on Why Archives Matter, which was the subject of an earlier blog post here.

Craig_100In an earlier blog, I reported the findings of The Commonwealth Fund’s December 2012 survey of foundations’ current archiving practices. It is of considerable concern that no more than 20 percent of even large foundations (those with assets of $240 million or more) maintain archives, given the importance of historical records to researchers and helping to assure accountability and good management in the sector.

A review of the literature, the survey findings, and conversations with leading archivists and foundation officers suggest ways in which the state of archiving in the foundation sector could be improved:

1. The number of foundations currently maintaining archives is far fewer than it should be, and foundation boards and executives should give more attention to the issue than they do now. Audit and compliance committees of foundation boards should ensure that at least the short-term records-retentions policy required by Sarbanes-Oxley is developed and enforced, and should take an active role in seeing that the question of archiving important records is addressed at the board level.

2. Chief executive officers of foundations should see one of their responsibilities as assessing the foundation’s need for archives and, if the decision is affirmative, delegating clear responsibility for their development and maintenance.

3. Boards and managements should see that resources are set aside as needed to achieve archiving objectives. The 2012 survey reveals that most foundations will find that maintaining archives, if done efficiently, is not a major expense.

4. Every foundation should have a stated archiving policy—even if it is “none”—to ensure that the question has been addressed. Policies should specify what records are to be preserved, the archiving model to be pursued (in-house vs. outsourced), access guidelines and restrictions, and guidelines for paper and electronic preservation. Archiving policies should ensure that the intensity of the archiving effort varies with the potential value of materials to users. The policy should be reviewed every five years to ensure that it keeps up with advances in information storage technology.

5. Archives are a "glasspockets" issue, and the Council on Foundations should be encouraged to include maintenance of archives among its best-practice guidelines for foundations above some minimum endowment size.

6. Outsourcing the archiving function to an external archive center is a viable option that many foundations, including multi-billion dollar ones, should consider. The choice of external center, however, must be made with care, and performance monitored regularly. Important questions include the following: do the foundations or other organizations that are currently donating archival records to the external center share similar objectives and expectations; does the external center have other significant collections that provide a valuable context for the foundation's archive; can the center meet the foundation’s expectations regarding the speed with which records are processed, provided with online finding aids, and opened to researchers; does the archival institution have the capacity to manage the long-term preservation of digital records and to provide access to them?

7. Many foundations, especially small and newer ones, may find that their archiving objectives going forward can be met with cloud-based content management systems (now spreading throughout the foundation community) that can be adapted in various ways for use by external researchers.

8. Two-thirds of larger foundations were established after 1989, but youth should be no excuse for postponing the question of whether to archive or not. Indeed, young foundations are in the enviable position of being on the ground floor on the technology front, often starting out with state-of-the art information systems in which virtually all of their records have always been kept digitally. Under these circumstances, archives are almost a natural byproduct of a good information system, with minimal marginal cost.

9. Spend-down foundations are prone to establish archives, but they often confront the issue only as the date of their sunset becomes imminent. Ideally, the question should be addressed early in their life.

10. Information technology staff of foundations should have as one of their major responsibilities the development of systems within the foundation that advance archiving objectives. They should work closely with the external archive center, when the foundation uses one, to coordinate and promote IT initiatives.

11. An affinity group of foundation officers with responsibility for archives (both in-house and outsourced) would greatly advance the spread of best practices in the sector. Foundations without archives reported in the 2012 survey that if there were a foundation-led group developing archiving standards and guidelines and providing information on consultants and experienced-based advice on technical issues, they would be better equipped to activate nascent plans for establishing archives.

12. Most importantly, consideration should be given to development of archive cooperatives by a consortia of foundations with common interests and archiving objectives. It is doubtful that existing archive centers have the capacity to take on large numbers of new foundation clients. Given the enormous number of foundations, interregional differences, and frequent commonality of interests at the regional level, multiple foundation archive coops might well be easier to launch and operate than a single national one. If the concept were to be judged promising, it could be piloted and capitalized by a few very large foundations in an “early adopter region”—with spread of the model to other regions to follow, if justified by the experience of the pilot.

In giving inadequate attention to the preservation of its historical records, the foundation sector is shortchanging historians and researchers of public policy, social movements, and important institutions and individuals who made a difference in their time. Above all, foundations are shortchanging themselves, by not ensuring that records exist for learning from experience and demonstrating their worth to society.

--John E. Craig, Jr.

Glass Pockets
August 3, 2012

(Christopher A. Langston, PhD, is the Program Director of the John A. Hartford Foundation, and is responsible for the Foundation’s grantmaking in support of its mission to improve the health of older Americans. This entry is re-posted from the John A. Hartford Foundation blog.)

Langston_100While our mission to improve the health of older Americans is our passion, we also try to be thoughtful about how we do our work as a foundation and as a part of the nonprofit sector and of society. There are only a few simple national rules (mostly set by the IRS) about how we do our work. So we need to be self-disciplined in our efforts to measure our results, learn from our mistakes, and improve our work.

As part of our commitment to improvement, we participate in philanthropic affinity groups to learn with and from our peers in aging and in health about what they do and how they do it. We look to organizations such as the Center for Effective Philanthropy to get feedback from grantees and analysis regarding best practices in the field. We follow the work of organizations like TCC, FSG, and Bridgespan that try to improve the practice and performance of philanthropy and the nonprofit sector.

Nonetheless, this work is self-imposed. Private foundations have few, if any, limitations set upon them as to the nature of their giving, the issues they focus upon, or their decision-making processes. There is certainly no requirement for foundations to try to improve their work as there is for hospitals certified by the Joint Commission or physicians renewing their board certifications. Foundation staff are answerable to boards, but boards are answerable only to their consciences (outside of sensational but thankfully rare abuses that draw the attention of the IRS or a State Attorney General). Some see the unconstrained variation of foundations as a problem and seek to impose some general set of priorities or principles on the field.

However, I think autonomy (and therefore diversity) of foundations with regards to mission and method is a good thing. It makes our society richer and more resilient, just as an ecology with more variation in plants and animals is more robust under stress than one with less biodiversity. Still, I wonder–what does a foundation owe to the broader society that grants it both tax advantages and this autonomy? In addition to our own commitment to be serious about our work, I think we should also commit to transparency. If we are open about our governance, finances, policies, and processes, we show that we are open to feedback. We are also more likely to adhere to our own standards simply by virtue of knowing that others know our goals.

To that end, we recently put on our 6-month-old, redesigned website a new section on Governance and Policies, found under the “About” menu on the navigation bar. We included our charter and bylaws as well as policies and procedures. We are also completing the collection of additional documents and resources we need to participate in the “glass pockets” transparency program run by the Foundation Center. We welcome scrutiny and comments from the public and especially from our grantees and the older Americans whose lives we hope to improve.

-- Chris Langston

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About Transparency Talk

  • Transparency Talk, the Glasspockets blog, is a platform for candid and constructive conversation about foundation transparency and accountability. In this space, Foundation Center highlights strategies, findings, and best practices on the web and in foundations–illuminating the importance of having "glass pockets."

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