Foundations can step up as shareholders

By Todd Cohen

Many foundations continue to miss a great opportunity to put their money where their mission is by failing to be more informed and active shareholders in the companies in which they invest their endowment funds.

As You Sow Foundation estimates that, despite the crisis in the capital markets, the combined value of the endowments of the 75,000 private foundations in the U.S. totals roughly $550 billion.

Yet most foundations typically delegate responsibility for voting their proxies in stock they own to their investment managers, who often side with recommendations by the company’s management.

As a result, As You Sow says, “these foundations, which equal the size of major institutional investors, fail to influence corporate policy, and worse, often support actions in direct opposition to both their own mission and the activities of their grantees.”

Michael Passoff, senior program director for the corporate social responsibility program at As You Sow, says the “market upheaval and reduction in funds available for traditional grantmaking” have prompted a growing number of foundations to look at ways to use their endowments to support their missions.

“Most foundations only pay attention to the 5 percent of their endowments that is granted out,” he says, “but there is more potential for positive impact in the 95 percent that is invested.”

Proxy voting, he says, “is a basic first step in aligning investments and mission.”

As You Sow has just released its Proxy Preview 2010, the sixth edition of a free resource for private foundations that is a companion to an earlier publication, Unlocking the Power of the Proxy.

The new edition of the Proxy Preview says executive compensation is the year’s biggest shareholder campaign, and that other big social issues include political donations, climate change, sustainability, and non-discrimination involving sexual orientation.

Emerging issues to shareholders, it says, include internet privacy, environmental and public-health impacts from natural-gas drilling and coal-ash waste disposal, and human rights.

Foundations increasingly are pushing nonprofits to be more accountable, to get more involved in policy change, and to use all the tools in their toolbox to build their capacity and advance their mission.

Foundations should practice what they preach.

By taking a more active role as shareholders, foundations can use all their assets, not just the small share they use to make grants, to advance their mission.

Before merging, look at big picture

By Todd Cohen

Nonprofit mergers, a strategy funders have been pushing, can backfire and should be pursued only after weighing their likely benefits and risks, as well as alternative options.

That is the message of an article, Merging Wisely, published in the Stanford Social Innovation Review and reported today by the Philanthropy Journal.

Mergers to combine the infrastructures of nonprofits can make sense because the duplication of infrastructure services for nonprofits is a big problem, the article says.

But nonprofits looking to produce revenue or cost savings from mergers should look twice, it says, because “transactional and integration costs” from the merger actually could mean additional costs in the short term.

And mergers may not even result in big cost savings for the long term, with the cost of combining audits, insurance, staffs and boards possibly even exceeding the savings.

Mergers can produce benefits in areas like fundraising and leadership.

Nonprofits also should look carefully at alternatives to mergers, such as combining only the back-office functions of nonprofits, or only some of their programs, or both.

Strategic alliances and informal collaboration also are options.

The limping economy has put enormous pressure on nonprofits to cut spending and find efficiencies through working more closely with other organizations.

Mergers may seem like a magic bullet but can create more problems than they solve, and they also can create upheaval within the combined organization through the collision of widely differing corporate cultures.

For nonprofits thinking about mergers, and for funders pushing nonprofits to merge, the challenge is to think hard about what tying the knot actually would mean, and to shop around for alternative ways to work smarter by working with new partners.