Transparency Talk

Category: "Brad Smith" (16 posts)

Are Chinese Foundations More Transparent than American Foundations?
September 13, 2012

(Bradford K. Smith is the president of the Foundation Center.)

Brad SmithOn August 29, the China Foundation Center launched its online Foundation Transparency Index a "proactive solution to set a new standard for the ethical conduct of foundations in China." Many people are surprised to learn there are foundations in China, let alone that they might be held to higher standards of transparency than their American counterparts. Could that really be the case?

First of all, there are foundations in China -- more than twenty-seven hundred of them, according to the China Foundation Center. China Foundation Transparency IndexLaunched in 2010, the CFC was created as a public information service at a time when China's economic growth increasing wealth concentration and strained social safety net were catalyzing a surge in the number of new foundations. The vision of its founders is not unlike the vision of John Gardner and others who, in 1956, created the (U.S.) Foundation Center to provide greater transparency to a rapidly expanding foundation sector in this country. In 1956, that meant stuffing the paper records of seven thousand foundations into filing cabinets. Today it means online databases, data visualization, video, social media, and digitized research reports covering some ninety thousand U.S. grantmakers and millions of their grants, research reports, news stories, and tweets. In contrast, the China Foundation Center was born digital and in just two short years has created online databases, interactive graphics, and research reports that take into account every grantmaker in China.

The CFC's Foundation Transparency Index is comprehensive, having already rated close to 70 percent of Chinese foundations.

Second, the CFC's Foundation Transparency Index is an elaborate one, carefully crafted with technical assistance from an advisory group of experts from some of China's leading universities with backgrounds in public policy, "anti-corruption studies," law, and nonprofit studies. The index comprises a checklist of sixty transparency indicators grouped into four categories: basic information, financial information, projects information, and donor information.  An elaborate algorithm produces a weighted composite score, with a maximum score of 129.4. Foundations' positions change in the rankings as their scores are adjusted weekly depending on the information they publicly disclose.  Just to be sure you don't miss the dynamic nature of the rankings, the tables for each foundation show their previous rankings, whether they are moving up or down, and their twelve-week range.  For the 1,831 foundations currently included in the index, only two (this week) get a perfect score of 129.4, while the average for all foundations (this week) is 52.98.

Third, foundations in China are regulated by the Chinese government, making the index a kind of complementary mechanism designed to further enhance voluntary transparency among Chinese foundations. If a foundation chooses not to publicly disclose the information via its own Web site, it will end up with a lower ranking. That is where a crucial difference between the Chinese and American contexts comes into play. In China, the term "foundation" is applied to both "public foundations," which are more like what we would call public charities, and "private foundations," which are akin to private operating foundations in the U.S. The former have every motivation to earn a high score in the Foundation Transparency Index because they solicit and depend on contributions from the public to carry out their work. The latter, though not technically endowed, are established with "registration capital" provided by an individual donor or corporation. Both, however, are concerned about the negative impact of scandal on the sector and know they can benefit from a positive image and general societal appreciation of their role.  Thus, the CFC' s Foundation Transparency Index is part Charity Navigator and part "Who Has Glasspockets?" -- a cross between a rating system and a transparency framework.

Fourth, American foundations, like their Chinese counterparts, are required to comply with government disclosure requirements by filing Form 990 or 990-PF. That information is made publicly available by the Internal Revenue Service in the form of unwieldy image files.  Organizations like the Foundation Center take millions of those forms and make them searchable in their entirety or, cleaned and coded, in tools like Foundation Directory Online. The cleaning and coding compensates for the missing, inconsistent, and limited information often found on those forms, but no one has ever had the temerity to actually score and rate American foundations on the information provided in the forms. Conventional wisdom has always assumed that, as endowed institutions, American foundations would be relatively impervious to any pressure a rating system might generate and, perhaps more importantly, unlikely to provide grants to whoever created and maintained such a system.

So getting back to the question that inspired this post, the answer is "maybe." The CFC's Transparency Index is geared more toward measuring to what degree Chinese foundations are disclosing compliance information, a good portion of which (43 of the 60 indicators) they are supposed to be providing to the government anyway. In addition to other types of information the CFC has deemed conducive to transparency (e.g., social media profiles, bios of board members, the foundation president's resume), a Chinese foundation wishing to attain a higher index score needs to go the extra mile by making the information available on its own Web site.

The Foundation Center's "Who Has Glasspockets?" transparency profile mixes a few compliance elements with governance indicators and features -- things like grants databases, knowledge centers, and performance assessments -- that help to illustrate a foundation's efforts to openly promote deeper understanding of the nature, impact, and quality of its work. At the same time, the FC transparency profile presumes that transparency in the digital age starts with a Web presence, thereby excluding the 74 percent of U.S. foundations that have no Web site at all. Foundations that are online can work voluntarily with Foundation Center staff to develop their individual "Who Has Glasspockets?" profiles. There is no scoring or ranking.

The CFC's Foundation Transparency Index is comprehensive, having already rated close to 70 percent of Chinese foundations, while the Foundation Center has painstakingly convinced forty-three foundations to voluntarily post transparency profiles on Glasspockets.

Philanthropy has long been a global phenomenon. But today technology gives us near real-time information by which to understand ourselves through comparison with others.  American foundations may be different than Chinese foundations in some ways, but in facing growing demands for transparency from government, media, and the public we are more alike than we realize.

-- Brad Smith

The Importance of Foundation Messaging: An Interview with Foundation Center President Brad Smith
March 1, 2012

Foundation Center President Brad Smith was recently interviewed by PhilanthroMedia's Susan Herr for the Communications Network about the responsibility of and opportunity for foundations to communicate what they do and why they do it. In an ever-more crowded media environment, Smith emphasizes, it is vital for foundations to keep repeating their messages and not shy away from talking about their aspirations to build a better world and how they’re working to make that happen.

 

 

Watch the video»

Read the Communications Network blog post»

-- Daniel Matz

Steve Jobs and Occupy Wall Street: Two Ways to Disrupt Philanthropy
October 11, 2011

(Bradford K. Smith is the president of the Foundation Center.  This post first appeared October 10, 2011, in PhilanTopic, a blog of opinion and commentary from Philanthropy News Digest. )

Occupy_wallst_large In the fifty-six impossibly creative years he spent on the planet, Steve Jobs did far more to disrupt philanthropy than any of us who write, think, live, and breathe it as a profession or avocation. By taking the hulking mainframe computers pioneered by the likes of IBM, Honeywell, and Control Data and putting them first on our desktops and then in our ears and in the palm of our hands, he connected us 24/7 to information and to each other. Perhaps because he never seemed that interested in philanthropy, we never fully grasped -- and may not still -- how profoundly he was changing our industry.

Far more radical than the sleek design and tactile interface of the company's inventions, however, was the profound way in which they democratized the control of and access to information. Philanthropy, a cumbersome latecomer field that is only beginning to operate in the digital world, cannot ignore what this means for social change and the way we do business. People, causes, organizations, governments, businesses, and everything in between are becoming networked in ways that bring into question our notions of "grantmaker," "grantee," "not-for-profit," and "for-profit." This kind of disruption, so competently explored by Lucy Bernholz, compels us to re-imagine, re-position, re-tool, and aspire to a future in which we can and must do far more to make the world a better place than we've done to date. Still, this is disruption philanthropy can live with: even as Jobs' innovations challenged us, many a foundation prospered by hitching their endowments to the upward spiral of Apple's geometrically expanding market cap.

Then there is Occupy Wall Street, a "leaderless resistance movement" that claims it is "the 99% that will no longer tolerate the greed and corruption of the 1%" and employs "the revolutionary Arab Spring tactic" to achieve its ends. When it comes to disruption, this is more like a fist to the solar plexus. No matter how you slice it, philanthropy is driven by asset-based wealth; indeed, large organized philanthropy of the foundation variety is fueled by the top 1 percent of the population that holds 23.5 percent of national income -- and whose "greed and corruption" the Occupy Wall Street movement is protesting. For foundations, Wall Street is not some distant exotic land, given that their investments are often entrusted to some of the biggest financial firms; nor is it unheard of for foundation presidents and executives from some of those firms to sit on each other's boards.

On the heels of a brutal recession caused, in large part, by an orgy of financial excess, it is dangerously easy to tar everyone in the top 1 percent with the same brush, even those who might have made their money the old-fashioned way and are giving something back through their philanthropy.

Occupy Wall Street has no Steve Jobs to personify it, yet the thousands who are swelling its ranks use his iPhones and iPads to document, communicate, organize, and network. A visionary business leader that saw a connected world beyond anything most of us could have imagined and a burgeoning social movement that refuses to accept the accumulation of vast wealth without the exercise of social responsibility: as philanthropy is disrupted, those of us who work in the field will have to adapt and change. And foundations will need to do a far better job of connecting themselves to the digital world, being transparent, and telling one big, overriding story: every day foundations strive to use the immense privilege and freedom of action that comes with wealth to fill the world with justice, beauty, and opportunity for all.

(Photo: Getty Images)

-- Brad Smith

Does Transparency Make Foundations More Effective?
May 19, 2011

Bruce Trachtenberg is the executive director of the Communications Network. This post originally appeared on the blog of the Center for Effective Philanthropy as part of the coverage of its 2011 Conference.

Bruce Trachtenberg

The subject of foundation transparency – especially to whom and for what purpose – can sometimes be murky. While there's no doubt that foundations should be transparent – and I can't imagine anyone disagreeing with that – to me it's not simply a question of whether transparency is a good thing. But rather, what additional benefits accrue to foundations that are transparent? Are they more effective? Are they better known? Are they better liked or is their work more appreciated? Put another way, is the right starting point for a conversation about transparency a question like, "Does being transparent make foundations more effective?," or should we be asking, "Is it possible to be an effective foundation without also being transparent?"

At a May 10th panel at the Center for Effective Philanthropy (CEP) conference, a group of wise and experienced foundation and nonprofit hands tackled the question on the role of transparency in foundation operations. The presenter, Brad Smith, president of the Foundation Center, was ably backed up by commentators Paul Brest, president, the William and Flora Hewlett Foundation, and Diana Aviv, president and CEO of Independent Sector, and moderator Stephen Heintz, president of the Rockefeller Brothers Fund.

There's what might be called a moral imperative for foundations to be transparent. As Smith said, "Foundations are created to serve the public good, and they need to explain what they do in terms the public can understand." That includes being clear about their purpose and demonstrating their performance. Notably, Paul Brest pointed out the risk to foundations that aren't transparent. Only by being transparent can foundations get meaningful feedback about their work. Not surprisingly, Diana Aviv reminded the audience that one of the benefits of foundations behaving transparently is that it helps grantees understand their standing with the organizations that fund them, and can even be helpful in understanding the reasons why they get turned down for funding.

As a group, they did a valuable service by not limiting themselves to trying to answer that question exclusively about a link between transparency and effectiveness. Instead, in their comments – and in queries from the audience – the session raised many other companion questions that could themselves be individually debated in subsequent sessions. Those questions ranged from:

  • How do you define transparency?
  • What is the relationship between transparency and accountability?
  • Is transparency always the most effective strategy?
  • What are the costs as well as administrative burdens to transparent organizations
  • Is there a role for foundation boards in setting parameters of transparency?
  • Whose job is it to ensure a foundation is transparent?

But at the heart of the conversation was an almost a priori belief that the more that foundations openly share information about their work with the public, policymakers, grantees, and other funders, etc., the better they are able to advance their missions.

The ultimate question – Does being more transparent make you a more effective organization? – is one that has to be viewed through the lens of what makes for an overall effective foundation strategy. In other words, transparency can't be an end unto itself. But, instead, if there is an organizational commitment to behaving transparently and if foundations are willing to share what goes on inside, that can serve as the basis or starting point for all sorts of other activities that would be otherwise impossible without it.

For instance, it's unlikely that the motivation (not to mention the costs) in creating web sites, publishing grant data, sharing CEP grantee perception reports, or tweeting, blogging or having a presence on Facebook – plus all the other means and methods that Foundation Center tracks on its Glasspockets web site – is because a foundation decides it wants to be transparent. Rather, foundations that behave that way believe that the information they share (and how they share it) can contribute to advancing their work.

Stated another way, the path to effectiveness comes from a clear and thoughtful foundation strategy that includes the need to share information, communicate strategically, and be open to public scrutiny as an essential way of doing business.

At the outset, I said this topic can sometimes still be a murky one. That point was reinforced by Paul Brest who said his foundation, at times, sees the need to be less open about its strategies. For example, he maintains that there's no benefit when working in areas such as climate change or family planning to let your opposition know your strategy so they can use it against you.

Similarly, Diana Aviv noted that too much information – especially if it's not categorized or presented in a useful way – can create confusion.

Once again, it all comes down to identifying your goal and the most effective strategy to get you there.

No harm being transparent about that.

—Bruce Trachtenberg

Modernizing the 990-PF to Advance the Accountability and Performance of Foundations: Part 2
March 21, 2011

(John Craig is executive vice-president and COO of The Commonwealth Fund. Craig is chair of the Nonprofit Coordinating Committee of New York, and a former chair of The Investment Fund for Foundations (TIFF). He serves on the boards of the TIFF Education Fund, the Greenwall Foundation, the International Women's Health Coalition, and the National Center for Law and Philanthropy, and on the investment committee of the Social Science Research Council.)

The full essay on which this post is based appears in The Commonwealth Fund's 2010 Annual Report.

John E. CraigIn my previous post I discussed some concerning flaws of the Form 990-PF, the tax return filed annually by private foundations. To address these flaws, I present some guidelines to consider for modernizing the 990-PF – a modest proposal, if you will:

The return should prod foundations to use web sites to report information on their programs and performance that cannot be readily conveyed on a tax return. The Foundation Center reports that only 26 percent of foundations have web sites. Surely in the Internet age, maintenance of a site that discloses basic information on the foundation's activities, governance, and management should be a fundamental test of accountability. Foundations should be allowed to detail their charitable activities by linking to their web site. Such sites enable far more comprehensive, timely, and accessible reporting of this information than a tax return can ever achieve.

Craig_pull_quote_3One of the biggest obstacles to e-filing is the return's Part XV requirement to list detailed information on all grants. Foundations should be able to meet the requirement by providing a link and by participating in the Foundation Center's web-based Grantsfire and eGrant Reporting program, which allows foundations to post information on grants nearly in real time or submit such data to the Center on a regular basis. This step would allow raw data on grants by individual foundations to be available on their web sites, while cleaned and structured data would be available through the Foundation Center's electronic databases.

 The reporting of expenses should be disaggregated functionally. Doing so would enable users to readily identify what part of the foundation's expenses is devoted to grants and direct charitable activities, grants administration, endowment management costs, unrelated business costs, and general administration.

The major missing gap of endowment investment performance should be filled. Requiring all foundations with assets of $10 million or more to report the net investment returns on their endowments for each of the last four calendar quarters would quickly produce a comprehensive time series on endowment returns that could be parsed by foundation size, intended life expectancy, and other variables to enable reliable peer benchmarking.

The basic return should be as short and uncomplicated as possible, and written in plain English. Essential tax code terminology should be provided parenthetically. The calculations of the required payout, payout shortfall, and excise tax on investment income should be concise and presented in a format easily followed by lay users. Secondary information should be requested in supplemental schedules. The requirement to list individual securities in the endowment portfolio should be replaced with one aimed at revealing any worrisome concentration of the endowment in a few securities—say, amounting to more than 5 percent.

Craig_pull_quote_4The Commonwealth Fund estimates that with these and other revisions, the annual cost of filing its 990-PF would fall from $18,000 currently to around $10,000—and its return would be more informative.

A revised 990-PF would also improve the principal databases for monitoring foundation activities. Nevertheless, the size and diversity of the foundation sector, the perils of the IRS using limited data to promulgate performance benchmarks, and serious IRS resource constraints lead to the conclusion that the foundation community itself should take primary responsibility for ensuring transparency, accountability, and best-practice adoption. Among the most promising approaches for helping institutions meet these goals is the Foundation Center's web-based Glasspockets project, which is increasing understanding of best practices in foundation transparency and accountability by drawing on information that foundations make available online.

As Foundation Center President Brad Smith argues, greater transparency is the best means to protect the freedom that philanthropies need to pursue their missions. Modernization would make the 990-PF an even more valuable instrument for promoting transparency and accountability and would strengthen the sector's own self-regulatory efforts to ensure effective use of the nation's philanthropic resources.

— John Craig

Why Glasspockets? An Interview with Foundation Center President Brad Smith
January 20, 2011

In an end-of-year conversation with Philanthropy News Digest, Foundation Center President Brad Smith shared his thoughts on a few of the topics that characterized 2010 and will likely shape 2011: the slow economic recovery and its impact on giving, the Giving Pledge campaign, and the meaning of transparency in a philanthropic context. We have excerpted his comments on transparency and posted them here.

Watch the video»

For the complete interview visit PhilanTopic blog»

— Daniel Matz

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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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