As a teacher, board member, trustee and consultant to foundations, Duke University professor Joel L. Fleishman has spent a lifetime trying to better understand the role the country’s more than 50,000 foundations play in America’s economic life. He has distilled that knowledge into a new book that sets before the nonprofit sector both the good and bad habits of the foundation world.
A scholarly version of tough love, the book warns that unprecedented levels of giving and large grants by such highly public figures as Warren Buffet and Bill Gates have put foundations under the national microscope — and what critics are seeing bodes ill for the future.
Too many foundations in America are neither transparent nor accountable to donors or the broader public, said Fleishman, and they are insensitive to the concerns and interests of their grantees. Today’s IRS rules also don’t require foundations to “pay out” enough of their endowments for charitable purposes.
Unless foundations address these shortcomings themselves, he predicted, government will move to impose stricter controls.
“That would have many negative effects on foundations,” Fleishman told The Examiner.
He proposes a broad array of potential solutions including a new, congressionally established oversight agency aligned with, but separate from, the IRS. Modeled after the National Association of Securities Dealers, the new organization would be funded with a portion of the taxes paid by foundations.
An alternative would be for umbrella groups such as the Council on Foundations and the Independent Sector (both headquartered in D.C.) to establish a voluntary accountability code and standards for openness.
If a foundation complied with the standards, it would receive a nationally recognized seal of approval.
Whatever the approach, a voluntary route to reform is preferable to anything government might impose. “And I hope that my book will focus our attention on these problems so that we can discuss them and seek solutions,” Fleishman said.
“We also share his conclusions about foundation candor and honest reporting of results,” said Douglas W. Nelson, president of the Annie E. Casey Foundation.
Nelson said his foundation has been proactive in sharing the outcomes of their initiatives, including issuing a report analyzing what he termed ” disappointing results” from the initiative.
“That report was much talked about and widely acclaimed — but not because it was exceptionally insightful,” Nelson explained but because “it was considered “remarkably forthright” for a foundation publication.”
Nelson also said that the Casey Foundation believed that some foundations spend too cautiously on charitable activities and too much on overhead and administration.
According to Nelson, over the last decade Casey’s disbursement has averaged 7 percent to 8 percent of their endowment, considerably above the 5 percent required by the IRS and above the typical foundation payout percentage, according to statistics published by the Independent Sector. Higher payouts were among Fleishman’s proposals.
Nelson’s list of foundation reforms include increasing requirements for foundation reporting; strengthening tax incentives for increasing pay outs above the current 5 percent minimum; and finding a way to exclude excessive executive pay from being counted as a charitable expenditure.
“Books like Joel’s, along with more mediacoverage, would go a long way to heightening accountability [of foundations],” Nelson predicted.
Have information about area nonprofits? Contact Frank Sietzen at [email protected].
