Transparency Talk

Category: "Financial Reporting" (39 posts)

Size Doesn't Matter
March 28, 2016

(Molly Talbot-Metz is vice president of programs at the Mary Black Foundation.)

Molly Talbot-MetzWhat does the Mary Black Foundation, a small private foundation in Spartanburg, SC, have in common with some of the country's biggest and most well-known foundations like the Bill and Melinda Gates Foundation, the Robert Wood Johnson Foundation, the Ford Foundation, and W.K. Kellogg Foundation?

The Mary Black Foundation is pleased to announce that we have joined 19 other U.S. foundations that have each joined the "Reporting Commitment," an initiative managed by Foundation Center. The Reporting Commitment is intended to shed light on the flow of philanthropic dollars. Housed at Foundation Center's Glasspockets, the Reporting Commitment calls for foundations to make grant information available to each other and the public at least quarterly in a common reporting format that shares the kinds of grants we fund, including the amount, duration, and purpose.

Mary Black FoundationOur decision to participate in the Reporting Commitment is a reflection of our desire to be a transparent community partner. According to Merriam-Webster, to be transparent is to be "easy to notice or understand; honest and open; and not secretive." Having been in philanthropy for almost 15 years, I know that transparency is not a word many use to describe foundations. For most people, the work of philanthropy is a mystery. There is often confusion and uncertainty about how foundations work and what they fund. They are often disconnected and isolated from the communities they serve. Slowly, this may be changing.

The Mary Black Foundation strives to be transparent in all that we do, and our participation in the Reporting Commitment was a logical addition to our existing efforts to be open and transparent with our community partners, the nonprofit sector, other foundations, and the general public. Since its inception, the Mary Black Foundation has published its grants in an annual report in print or on our website. In 2014, we redesigned our website to more clearly communicate our grantmaking process and guidelines.

"Openness requires a culture of transparency."

Now, in addition to our annual report and listing of funded organizations, you will also find on the Foundation's website its bylaws, code of ethics, financial statements for the past five years, listing of staff and board members, strategic plan, and funding logic model. It is important to the Foundation's board and staff that we go above and beyond the required IRS disclosure of funded grants. This kind of openness is not difficult for foundations of any size, but it does require a culture of transparency. 

Our commitment to transparency goes beyond openly reporting our policies and procedures and the grants we fund. The Foundation strives to be actively involved in the community and to be equal partners in community initiatives. Our public commitment to partnership is one of the reasons we were selected to lead Spartanburg's involvement in a national competition to improve health outcomes in our community. We will ensure that lessons learned and changes in health outcomes are tracked and reported. In that way, our successes and challenges both can help others as they embark on similar efforts.

We hope other foundations - big and small - will see the importance of being more transparent and engaged in the communities they serve and make the Reporting Commitment pledge. By collectively being transparent about our work, we strengthen our credibility and increase public trust, improve grantee and community relationships, facilitate collaboration among each other and reduce duplication of efforts, and build a shared community of learning.

-- Molly Talbot-Metz

'Dark Money' Expected to Set 2016 Records
January 18, 2016

(This post first appeared in Philanthropy News Digest.)

The amount of so-called dark money, contributions to nonprofits and other tax-exempt entities that are not required to disclose their donors, backing various presidential campaigns in 2016 is expected to exceed the more than $300 million contributed during the 2012 presidential election cycle, the New York Times reports.

The troubling lack of transparency, the Times notes, is being driven by political advocacy groups that exploit a loophole in the tax code that allows them to avoid disclosing their donors while holding on to their tax-exempt status. Many of those organizations court special interest groups and wealthy donors who crave the influence that political contributions can buy but spurn any public accountability implied by those contributions. For example, almost 20 percent of the television ads touting the positions of Sen. Marco Rubio (R-FL) have been financed by dark money, the Center for Responsive Politics reports, with most of that coming from the nonprofit Conservative Solutions Project.

The biggest dark money spenders in this cycle, however, have been the U.S. Chamber of Commerce and Crossroads Grassroots Policy Strategies, a D.C.-based nonprofit organization that operates under the umbrella of the American Crossroads "super" PAC, which was co-founded by longtime Republican strategist Karl Rove. While the Federal Election Committee could force such organizations, with their heavy involvement in political campaigns, to register as political action committees, the commission hasn't shown any inclination to do so. Indeed, with Congress having effectively quashed, in the ominubus spending bill it passed at year-end, near-term efforts by the Internal Revenue Service to regulate these groups until after the 2016 election cycle and the FEC content to sit on the sidelines, the Justice Department is seen as the only federal agency that might attempt to shed some light on their activities.

Fred Wertheimer, the president of Democracy 21 and a longtime advocate of campaign finance reform, has asked the Justice Department to do just that, with an emphasis on political activities associated with Rubio's campaign. "Secret money is the formula for corruption," Wertheimer told the Times. "It's the influence buyer's dream."

Albert R. Hunt. "'Dark' Funds May Bode Ill in 2016 Election." New York Times 01/03/2016

Beyond Money: Foundations Can Create Change by Building Communities
December 3, 2015

(Mark Schmitt directs the political reform program and is director of studies at New America, an independent think tank and civic enterprise. He is a former editor of The American Prospect and has been a program director at the Open Society Foundations and worked on Capitol Hill. Follow him on Twitter at @mschmitt9. This post originally appeared on Philantopic. It is the 10th and final post in a series about U.S. democracy and civil society.)

Schmitt headshotThe world of foundations and the work they fund has for too long been shrouded in obscurity. While many foundations boast a commitment to transparency and release lists of their own grants, it has been far too difficult to see who funds an entire field, or understand how a foundation-backed policy idea made it onto the agenda. Given that foundations can be at least as influential as big political donors, driving policy initiatives such as charter schools and health reform, there should be resources that open up the sector to journalists and activists, as well as grantseekers interested in understanding the often mysterious question of who got what.

But that’s only part of the question. Even the most complete list of grantees and grant dollar amounts tells us only so much about the work and the vision: What does restoring American democracy mean, in practice? Can this mapping resource help answer that question?

Foundations do more than just give money to worthy projects. At their best, they make at least two other vital contributions: They help build a community — that is, the whole network of sustainable, adaptive organizations, from research projects to grassroots activists, that can further a cause — and they create connections, across issues and communities, in order to make each one stronger and more vibrant. So in looking at the Foundation Funding for U.S. Democracy tool, I wanted to ask those questions: Where have foundations built strong communities around democracy issues? And have they created the kinds of connections — between, for example, nonprofit journalism and efforts to reduce the role of money in politics — that strengthen these communities and the cause?

Schmitt_blog_image
The “constellations” section of the tool doesn’t fully answer these questions — to do so would require much deeper analysis and for foundations to provide more complete and plain-English descriptions of the “why” of their grantmaking — but it provides some useful clues. For example, one can see a distinct community of organizations working on election administration and access-to-the-ballot issues — a relatively small number of sizable organizations, with reliable support over several years, often in the form of general-support grants. Closely aligned to these core groups is a larger group of smaller organizations focused on a single state or a particular constituency. (This community would be even larger if the substantial and central contribution to the field made by the Pew Charitable Trusts were included. While grants to its elections project from other foundations are listed, its self-financed work is not.) It is probably no accident that despite the partisan acrimony over voting and significant setbacks to the voting rights movement, there has been significant progress and consensus on ideas such as early voting, online voter registration, and other aspects of election reform.

In a 2013 article in Democracy, Nick Penniman and Ian Simmons argued that the $45 million a year that foundations and other donors were investing in efforts to reform the role of money in politics was too little, and that if they wanted to advance progress on the causes they care about, individual and institutional philanthropists ought to commit one percent of total private giving, or $3 billion annually, to causes such as fixing the corrosive role of money in politics. This tool extends the point made by Penniman and Simmons to show that not only is total funding for campaign reform inadequate to the challenge, the community engaged in that effort is diffuse, the core organizations comprising that community are hard to identify, and the grants awarded in support of that cause are relatively small and often for specific projects rather than general support.

Moreover, in neither case does there seem to be much connection to other issues of democracy or to efforts such as improving journalism or civic education. Each of these issues, such as funding for innovations in public service journalism or for the Newseum in Washington, DC, seems to attract a unique set of funders who do little or no giving for other democracy issues.

Foundation Funding for U.S. Democracy is not the definitive answer to the questions about how funding works and whether it has built effective communities around democracy issues. To really see foundation funding for democracy and how it has worked requires a deeper investigation and the kind of real journalistic scrutiny that foundations rarely get. But much like the databases we rely on to understand the influence of money in democracy, this tool is a start and provides valuable clues and an outline for those who want to follow the money.

--Mark Schmitt

Philanthropic Dollars Also Shape Electoral Outcomes: Here’s How…
October 28, 2015

(David Callahan is founder and editor of Inside Philanthropy. Previously, he was a senior fellow at DemosThis is the fifth in a series of 10 posts about U.S. democracy and civil society that will be featured on PhilanTopic in the run-up to Election Day, and beyond. This post first ran in PhilanTopic.) 

Callahan Headshot%2c 1With another presidential campaign season under way, we’re again hearing a lot about the mega donors and Super PACs that fuel modern politics. But this isn’t the only stream of money that influences how elections unfold in the U.S.; philanthropic dollars also play a key role, with foundations supporting a range of activities that affect how our democracy functions and what happens at the polls.

Understanding the flow of these grants isn’t just helpful for nonprofits hoping to get a piece of the pie. It’s also super useful for journalists or others keen to see how foundations — which, by law must be nonpartisan — are deploying funds in ways that can sway electoral outcomes.

Let’s take the area of voter education, registration, and turnout as an example. It’s no secret that who turns out to vote, and where, can make a big difference in determining which candidates win on Election Day. If more African Americans turn out in swing states like Florida or North Carolina, for instance, that’s good news for Democrats. If the electorate tilts toward older and white voters, Republicans stand to gain.

Campaigns and Super PACs spend mightily to shape who votes. But what have foundations been doing? Well, Foundation Center’s newly launched Foundation Funding for U.S. Democracy tool offers some answers to that question.

Consider the state of Florida, a fiercely contested battleground in both presidential and off-year elections. Drilling into the data, where grantmaking can be easily segmented by the populations served, we find that five funders have given over a half million dollars in grants in recent years to seven groups that work with “ethnic and racial groups” on voter education, registration, and turnout. For example, the Florida New Majority Education Fund pulled in $200,000 in grant money from the Marguerite Casey Foundation and the Proteus Fund in 2012 and 2013. Casey has described this group as working to “increase the voting and political power of marginalized and excluded constituencies toward an inclusive, equitable, and just Florida.” Historically, these constituencies have supported Democrats at election time.

Other Florida groups that have received money for voting work, according to the database, include the Farmworker Association of Florida and Planned Parenthood of South Florida and the Treasure Coast.

Screenshot_Callahan_1

Moving to another swing state, North Carolina, we find a similar pattern: Nearly a half million dollars in grants have been made in recent years for voting work with racial and ethnic groups. The biggest recipient here was Democracy North Carolina, which has lately been at the forefront of efforts to defend voting rights amid a legislative push in that state to restrict the franchise in ways that research has found tends to reduce turnout among African Americans, Latinos, and young people.

Speaking of efforts to restrict the franchise, it’s important to note that not all grantmakers in the democracy space have sought to make voting more accessible by historically marginalized groups. Some have supported work to require voter identification at the polls and to roll back  measures such as early voting and same-day registration, which advocates have pressed for in many states as a way to expand and diversify the electorate.

In North Carolina, the John William Pope Foundation has long been known for its support of tougher voting rules that it says are needed to protect against voter fraud. What exactly has this entailed? The data shows 61 grants totaling more than $2.4 million by the foundation in North Carolina since 2011 that relate to democracy issues.

The Pope Foundation — controlled by Republican activist Art Pope — has been one of the top funders in the democracy space in recent years in North Carolina. But two other funders have given more: the Triad Foundation and the Open Society Foundations. Other big funders of democracy work in the state include the Z. Smith Reynolds and Ford foundations.

There are a lot more examples we could dig into to illustrate how funders are shaping voting work at the state level in ways that can and do affect electoral outcomes. All this grantmaking is officially nonpartisan and perfectly legal, but little of it is actually impartial.

And herein lies an important truth about how money influences America’s democracy. Yes, there is a vast and swollen river of cash flowing into political campaigns. But another, separate tributary of philanthropic money related to elections has also been growing. In fact, Foundation Center reports that funders have made grants totaling nearly $300 million since 2011 specifically for work in support of campaigns, elections, and voting.

That amount is nothing compared to the more than $6 billion that political contributors gave in the 2012 election cycle alone. But it’s still serious money that deserves close scrutiny.

 --David Callahan 

The Foundation Center and MacArthur Foundation Join IATI – Open Philanthropy Meets Open Global Development
December 23, 2013

(Jeff Falkenstein is vice president of data architecture at the Foundation Center.)

FalkensteinThe Reporting Commitment, an initiative by 15 of the largest foundations in the United States to be more transparent in how they share data on their grantmaking, launched a year ago in October. Since then, those 15 foundations have been joined by the Laura and John Arnold Foundation and the VNA Foundation. These organizations have committed to a level of transparency and scrutiny never before seen in the philanthropic sector. But why? Some foundations are interested in communicating out what good works they are doing and sharing lessons learned; some are hoping to improve their organizational intelligence through the sharing of better and more timely data, and others are hoping to be more effective, efficient and targeted in both their grantmaking and collaboration efforts. Not that these ideas are mutually exclusive.

At the heart of the Reporting Commitment is a set of standards by which the participating foundations have agreed to report their data. 1) The grant data must be reported at least quarterly; 2) the grant data must include the details of the geographic area being served using the Foundation Center’s geographic taxonomy--the Geotree--so the data can be reported consistently; and 3) the foundations must all report their data using the Foundation Center’s html-based reporting standard, hGrant.

Egrant_reporterhGrant is just one approach to joining the Foundation Center’s eReporting program; another part of the program is eGrant Reporting wherein nearly 1,000 foundations provide data in an Excel format through standard report queries via one of the Center’s grants management software partners. We are working closely with many of our partners to include hGrant as a reporting output option as well.

IATIGiven our experience with data standards, the Center was invited to join the Technical Advisory Group of the International Aid Transparency Initiative (IATI), an initiative to create an XML-based data standard to capture data on global development flows, primarily those of governments and international agencies. The goal of this work was to bring together organizations committed to working together to increase the transparency of capital flows benefitting aid on a global scale. In developing this standard, IATI has been careful not to duplicate the great work already being done by other organizations such as the Organization for Economic Co-Operative Development, which produces statistics about past aid flows. Instead, the IATI standard builds on this foundational work and tries to improve the timeliness and accessibility of such data.

Realizing that government and multilateral/bilateral data does not tell the whole story of aid flows, many NGOs have also joined the IATI community. Additionally, two foundations have joined the initiative, including early adopter the William and Flora Hewlett Foundation, and, most recently, the Bill and Melinda Gates Foundation. The Foundation Center is very excited to report that we are officially the 200th organization to join IATI, through the help of the John
D. and Catherine T. MacArthur Foundation
. The MacArthur Foundation, one of the original participants of the Reporting Commitment, realized that it wanted to have a voice in international global development, as did the Hewlett Foundation and Gates Foundation. Rather than MacArthur reporting directly to IATI, creating redundancy in their workflows, the Foundation Center worked to enable MacArthur’s Reporting Commitment hGrant feed to be simultaneously converted into the IATI XML standard and, as a result, it is now reported on the IATI registry. We are pleased to be able to help the MacArthur Foundation more fully engage in the global development conversation, and this is just one of the ways the Foundation Center is working to help philanthropy open up its data.

The Foundation Center is dedicated to increasing knowledge on philanthropy through the timeliness and transparency of data, as can be seen via our recent efforts around:

Much like the MacArthur Foundation wanting to get its information out to both peer foundations and the global development community, the Foundation Center is looking for ways to help other foundations be more strategic, gain access to more timely data, better understand where they sit in the sector in relation to their peers, and create opportunities for knowledge sharing and learning.  We'll be announcing some new foundations joining the Reporting Commitment soon. Our work with hGrant and IATI is just another step down that road to helping foundations become a part of the open data movement. Come join us!

If you want to learn more about the Foundation Center’s eReporting program, IATI or anything else in this blog, please contact me at JAF@foundationcenter.org.

-- Jeff Falkenstein


 

Glasspockets Find: Tracking the Performance of Global Impact Investment Portfolios
November 5, 2013

(Rebecca Herman is special projects associate for Glasspockets at the Foundation Center-San Francisco.)

Herman-100In the Stanford Social Innovation Review blog today, Lisa Kleissner, president of the KL Felicitas Foundation, called for more transparency in impact investing and highlighted benefits of sharing impact performance data. Kleissner’s article, Creating a Better Future Through Transparency, accompanies the release of a report detailing the financial performance of the KL Felicitas Foundation’s impact investment portfolio over the past seven years. The report, titled Evolution of an Impact Portfolio: From Implementation to Results, was published by Sonen Capital and can be downloaded online (registration required).

Kleissner commented in her article that the report’s goal is to help fill the gap in performance data on impact investments. If there is more transparency in financial and impact performance, Kleissner argues, investors who are interested in positive social impact can learn from different investment approaches. Impact investors and social entrepreneurs may also be interested in exploring the Toniic network, which Kleissner co-founded as a global impact investing platform. As impact investing and social entrepreneurship continues to increase, we look forward to hearing more ideas about how to share outcomes and lessons learned in this burgeoning field.

-- Rebecca Herman

Glasspockets Find: Fostering Transparency in Mexico’s Philanthropic Sector
October 15, 2013

(Rebecca Herman is Special Projects Associate for Glasspockets at the Foundation Center-San Francisco.)

If your elected officials suggested eliminating the tax-deductibility of donations and the tax exemption of nonprofit organizations, you might be very motivated to defend the role of philanthropy in civil society. In Mexico, in the face of such a proposal, a broad coalition of organizations joined together in opposition and took aggressive steps to remedy the lack of information about Mexico’s nonprofit sector. Fondos a la Vista (“Funds at a Glance”), launched in January 2013, aims to foster a trustworthy and transparent civil society through its searchable database of more than 22,000 Mexican philanthropies.

"You can see that there have been billions of pesos—hundreds of millions of dollars—donated by donors in Mexico. I think it’s a real cure for pessimism and for cynicism about the sector."

Fondos a la Vista is an online, public resource that provides comprehensive information about domestic donors in Mexico and their philanthropic activity—including the organizations they support (las Organizaciones de la Sociedad Civil, or OSCs). The platform is modeled on Foundation Directory Online and was developed by the Foundation Center in partnership with the Mexico-based Alternativas y Capacidades and the Philanthropy and Civil Society Project at ITAM (Instituto Tecnológico Autónomo de México).

A video explaining the mission of Fondos a la Vista and the role it can play in civil society was recently produced by Alternativas y Capacidades in conjunction with the launch of a giving portal on the U.S.-Mexico Foundation website:  

Watch the video»

Michael D. Layton, Director of the Project on Philanthropy and Civil Society at ITAM, states in the video that one of the ways in which Fondos a la Vista can be useful as a transparency tool is to counter misconceptions about the nonprofit sector, such as the idea that people don’t give in Mexico. "Looking at the data in Fondos a la Vista…you can see that there have been billions of pesos—hundreds of millions of dollars—donated by donors in Mexico. I think it’s a real cure for pessimism and for cynicism about the sector. I think it can really give a boost to the nonprofit sector and philanthropy in Mexico."

-- Rebecca Herman

The Brave New World of Good
October 11, 2013

"O wonder!
How many goodly creatures are there here!
How beauteous mankind is! O brave new world,
That has such people in't."
(William Shakespeare)

"Most human beings have an almost infinite capacity for taking things for granted."
(Aldous Huxley)

Globe-handsWelcome to the Brave New World of Good. Once almost the exclusive province of nonprofit organizations and the philanthropic foundations that fund them, today the terrain of good is disputed by social entrepreneurs, social enterprises, impact investors, big business, governments, and geeks. Their tools of choice are markets, open data, innovation, hackathons, and disruption. They cross borders, social classes, and paradigms with the swipe of a touch screen. We seem poised to unleash a whole new era of social and environmental progress, accompanied by unimagined economic prosperity.

As a brand, good is unassailably brilliant. Who could be against it? It is virtually impossible to write an even mildly skeptical blog post about good without sounding well, bad -- or at least a bit old-fashioned. For the record, I firmly believe there is much in the brave new world of good that is helping us find our way out of the tired and often failed models of progress and change on which we have for too long relied. Still, there are assumptions worth questioning and questions worth answering to ensure that the good we seek is the good that can be achieved.

Markets

The potential of markets to scale good is undeniable. The most successful nonprofit and foundation efforts can only be replicated in multiple locations, while markets routinely attain regional, national, or even global scale. But even "philanthropic investment firms" like Omidyar Network, which was born out of eBay-inspired market zeal, have added outright grants to nonprofits as an essential part of their change strategy. Perfect markets exist only in economic theory. In the real world, avarice, corruption, politics, and power conspire to exclude minorities of all descriptions from their share of market rewards. Social policy and philanthropy, for all their faults, persist precisely because market booms benefit too few and market busts hurt too many.

Open Data

Second only to "good" in terms of marketing genius is the concept of "open data." An offspring of previous movements such as "open source," "open content," and "open access," open data in the Internet age has come to mean data that is machine-readable, free to access, and free to use, re-use, and re-distribute, subject to attribution. Fully open data goes way beyond posting your .pdf document on a Web site (as neatly explained by Tim Berners Lee's five-star framework).

When it comes to government, there is a rapidly accelerating movement around the world that is furthering transparency by making vast stores of data open. Ditto on the data of international aid funders like the United States Agency for International Development, the World Bank, and the Organisation for Economic Co-operation and Development. The push has now expanded to the tax return data of nonprofits and foundations (IRS Forms 990). Collection of data by government has a business model; it's called tax dollars. However, open data is not born pure. Cleaning that data, making it searchable, and building and maintaining reliable user interfaces is complex, time-consuming, and often expensive. That requires a consistent stream of income of the kind that can only come from fees, subscriptions, or, increasingly less so, government.

Foundation grants are great for short-term investment, experimentation, or building an app or two, but they are no substitute for a scalable business model. Structured, longitudinal data are vital to social, environmental, and economic progress. In a global economy where government is retreating from the funding of public goods, figuring how to pay for the cost of that data is one of our greatest challenges.

Innovation

Open-data purists frequently equate open data with innovation. Opening up data to as many brains as possible simply increases the likelihood that something creative, unexpected, and truly innovative will be done with it. We often hear about examples of transit apps, election fraud maps, early warning systems, and the like powered by open data-fueled innovation. But it is probably still too early to declare victory on what seems to be a positive trend, partly because we are invariably attracted to the new, exciting things that catch our attention at the moment. Meanwhile, most innovation that scales in the world is the stuff we never see coming because it is contained in patents purchased and protected deep within the intellectual property vaults of companies like Apple, IBM, and Google. We need to build ways to identify, track, evaluate, and communicate sustainable innovation to assess the true potential of open data.

Hackathons

Hackathons are the tool of choice for transforming open data into innovation. Talented programmers are turned loose, usually on a volunteer basis, to create something cool, useful, and good out of different data streams. This challenges traditional models where expertise is siloed within individual businesses or organizations along with all the tunnel vision and bottom-line pressures that can stifle true creativity. Hackathons are amazing, and the sheer brilliance, energy, and will of brainy programmers to do good is inspiring. But we should not kid ourselves. Relying on intense coding sprints by otherwise overworked programmers may be the "new necessary" in terms of tackling the world's most pressing problems, but it is not sufficient. This highly qualified, high-value form of volunteering is fast becoming a key ingredient in producing lasting change, but seldom is it the entire recipe.

Disruption

In the brave new world of good, disruption has practically become synonymous with innovation. For those aspiring to emulate the success of a Sean Parker or a Mark Zuckerberg, venerable businesses and nonprofits are often seen as "ripe for disruption." What economist Joseph Schumpeter described as "creative destruction" has always been part of economic progress, as innovation in producing goods and services comes to replace old business models with new. But today, it is almost as if disruption is an end in itself rather than a means. Wait a minute: If we are busy disrupting businesses and organizations right and left, who's going to pay the salaries and benefits of all the programmers required to turn open data into innovation through hackathons?

Transparency

My favorite example of good is the social enterprise that calls itself just that, "Good," and bills itself as "a community of people that give a damn." It's almost as if a Wall Street financial firm was to label itself "Greed." I follow Good's great infographics, enjoy its positive vibe news stories on my mobile news reader, and really don't have anything against the company except that I don't know much about it. It's privately held and says nothing detailed about itself on its Web site; in fact, this is all I could find out about the company online. Oh, and Good has a dog-friendly work environment. That, in a nutshell, is my greatest concern about the brave new world of good -- its lack of transparency.

For many who inhabit this brave new world, nonprofits and grantmaking foundations are associated with the old way of doing things. Nevertheless, we have a very good idea of what they actually do to create a better world because they are required to tell us in public disclosure documents. Those documents, the IRS Forms 990, though far from perfect, have served as the raw material on which entire information systems have been built by organizations like GuideStar, the Foundation Center, and the National Center for Charitable Statistics to classify, track, measure, and visualize how America's more than 90,000 grantmaking foundations and 1.3 million nonprofits work on everything from adoption to Zambia. We know who's on their boards and staff, where the money comes from, to which organizations it goes, and for what, where, and whom it is destined to benefit. Foundations and nonprofits may not be hip, but they are more transparent.

There is no comparable information source for impact investing, social entrepreneurship, corporate social responsibility, and the like. We have some data -- rankings and ratings, standards, and partial information on impact investing -- only some of which is open and, taken together, is nowhere near comprehensive. So, despite its enormous promise, we are left to understand this brave new world of good through spotty data, case studies, the occasional evaluation, and lots of anecdotes (aka "storytelling"). There is hope on the horizon in the form of Markets for Good, a nascent effort to create a kind of data and information "commons" for the social sector. Funded by -- guess who…foundations (!) -- and backed by some twenty organizations, we now have a platform to bring together the different data streams that enable us to begin to piece together the world of good.

Follow the Money

Several years ago, a Google employee told me: "I want to map all the good in the world." At the time, I remember thinking how monstrously naïve that seemed (though if anyone could pull it off, it would probably be Google.) But today, I see that comment in a different light and find myself yearning for the same thing. If so much of the world is doing good, I want to know about it. I want to count it, measure it, and map it. Some will say -- as they do of philanthropy -- "I don't care how much money is being spent on X, I want to know what's effective." So do I, but we all know that standardizing effectiveness is elusive at best. In the meantime, let's follow the money. We know how much money the world is spending on pet food, weapons and war; let’s try to prove we're spending more on good.

-- Brad Smith

This blog is re-posted from PhilanTopic.

Foundation Transparency: The More Things Change, The More They Stay The Same
May 17, 2013

(Aaron Dorfman is executive director of the National Committee for Responsive Philanthropy (NCRP). He frequently blogs about the role of philanthropy in society. Follow NCRP on Twitter @ncrp.)

Dorfman-100As I reviewed “Foundation Transparency: What Nonprofits Want,” the latest publication from the Center for Effective Philanthropy (CEP), I had an overwhelming sense of déjà vu. So I dug deep into the archives to find reports on the subject produced by the organization I now lead, the National Committee for Responsive Philanthropy (NCRP).

What I’m left with is a sense that, on the issue of transparency, the more things change, the more they stay the same.

In May 1980, NCRP released Foundations & Public Information: Sunshine or Shadow? It was a scathing report that took foundations to task for their reticent approach to sharing information, and it launched a decades-long commitment by NCRP to promote increased transparency. The report explored why foundations should be accountable and transparent, and also the inadequate government requirements at that time. It ranked and scored 208 of the largest philanthropies using a rigorous methodology and found that 60 percent of foundations in the sample did not meet an acceptable standard of transparency. Just 4 percent were found to be “excellent.”

The methodology included a heavily weighted assessment of whether foundations provided the kinds of information that nonprofits most desired, including information about grantmaking interests and policies, and how grant applications were evaluated and decisions made about which organizations to fund.

I see many parallel findings between that report and CEP’s excellent new report. A full 33 years later, nonprofits are still clamoring for more information about how foundations make funding decisions and they want clear and open communication about priorities. They want to know whether it’s worth their time to cultivate a relationship and pursue funding. And despite an explosion of glossy annual reports and fancy websites, leaders of grant-seeking organizations are still highly frustrated by the lack of clear communication about a central element of foundation activity, namely how foundations decide which organizations to fund.

Foundation Transparency surveyed 138 nonprofit leaders, and I was unsurprised to see many of the respondents reference a desire to know how foundations assess their own performance and the impact they have. It only seems fair that since foundations are requiring this from grantees, that they be willing to be accountable for articulating impact, too.

Some of the findings suggest to me that nonprofits really want foundations to function as true partners. For example, the fact that an overwhelming majority of respondents wanted to know more about what foundations are learning indicates that grantees want learning to go both ways.

The CEP report doesn’t explore the regulatory framework for foundation transparency, nor does it explore in-depth the arguments for why greater transparency may be warranted. But another report released this year does revisit those questions. The Philanthropy Roundtable published in March 2013 Transparency in Philanthropy: An Analysis of Accountability, Fallacy, and Volunteerism.

As I reviewed Foundations & Public Information in light of the Roundtable’s current offering, I was struck by how little the arguments in favor of greater foundation transparency have changed since 1980. The original NCRP report looks at the partially-public nature of philanthropy, which is revisited by the Roundtable (though our organizations obviously come down on different sides). The partially-public dollars argument asserts that because of the preferential tax treatment afforded to foundations, a high level of transparency and accountability is owed to the public and grantees. NCRP repeated and expanded on this argument in our 2009 publication Criteria for Philanthropy at Its Best: Benchmarks to Assess and Enhance Grantmaker Impact.

In 1980, NCRP devoted some attention to why greater transparency is in the self-interest of foundations and how it might improve their effectiveness. This topic is explored robustly in the Roundtable’s new report, Criteria, and is touched on in the CEP report. Because I see additional regulation as unlikely in the near future, the link between effectiveness and voluntary transparency merits further exploration.

Speaking of regulation, there has been some increase in activity around this in recent years, though nothing has actually changed for more than 20 years in terms of mandated disclosures. Most philanthropy insiders are familiar with efforts by the Greenlining Institute to pass AB624, which would have required new disclosures for the largest foundations in California. Fewer are aware of quieter efforts by the Philanthropy Roundtable to pass legislation in several states banning efforts similar to AB624.

The last substantive change that shaped the current required information disclosure in the IRS form 990-PF can be traced to when NCRP worked with Senator Dave Durenberger (R-Minn.) to influence the IRS to change what it required in the form. Those changes contributed to helping the Foundation Center produce the best data available about the sector. An abbreviated version of how NCRP’s efforts on transparency evolved, including the Durenberger intervention with the IRS, can be found on page 10 of this look back at NCRP’s history.

What I’m left with is a sense that, on the issue of transparency, the more things change, the more they stay the same.

Coincidentally, around the same time as I was reviewing the new CEP publication and beginning to think about crafting this blog post, Bob Bothwell invited me to join him on a Friday evening for a baseball game at Nationals Park. Bothwell was NCRP’s executive director from its inception in 1976 until 1998. I am reminded again of how important it is for those of us from a new generation who are leading nonprofits and foundations to intentionally nurture connections to our history, even while we attempt to take our organizations in new directions.

And in case you’re wondering, the Washington Nationals beat the Cincinnati Reds 1-0, and Jordan Zimmerman pitched a one-hitter.

--Aaron Dorfman

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

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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."

    The views expressed in this blog do not necessarily reflect the views of the Foundation Center.

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