Inside Philanthropy

A blog on philanthropy and nonprofit news and issues. A publication of Philanthropy Journal.

March 9, 2009

Giving sector should get over sense of entitlement

By Todd Cohen

Slapped in the face by the economic crisis, nonprofits should be focusing on how to best run their shops, serve their clients and engage their givers.

The news is grim: Paul Light of New York University expects 100,000 of the 1.3 million nonprofits in the U.S. to fail this year, while a new survey by consulting firm Marts & Lundy says the recession has triggered roughly 20 percent in staff cuts at nonprofits.

And barely a day passes without reports of charitable retrenchment.

But despite the reality check, nonprofits and foundations alike seem lost in their delusion of entitlement.

Instead of getting their act together and making their own way, nonprofits are rushing to belly up to the federal-stimulus buffet while moaning that the federal government is ignoring them and that proposed limits on tax deductions for charitable contributions will hurt them.

And foundations continue to squeeze out crocodile tears about the decline in the value of their investments, forced tears that cloud the vision of foundation officials so badly they cannot read the bank statements showing they still control vast wealth.

That wealth, which givers donated to foundations to support charitable causes, is not the personal piggybank of foundations’ boards and staff, or an investment portfolio for perpetuating their personal power.

Despite the drop in its value, foundations can and should use that wealth to address the urgent needs of nonprofits and the communities they serve, needs that are escalating in inverse proportion to the free-fall of the U.S. economy.

Foundations need to do a lot better.

In “Philanthropy at its Best,” released last week, the National Committee for Responsive Philanthropy prescribes benchmarks designed “to assess and enhance” grantmakers’ impact.

Saying the largest U.S. foundations give only one of every three dollars, for example, to benefit “the economically and socially disadvantaged,” the watchdog group wants every foundation to make its board more diverse, and to invest at least half its annual giving in meeting the needs of low-income communities, communities of color and marginalized groups, and one-fourth for advocacy, organizing and civic engagement.

Foundations should in fact be required to give more of their assets in return for the generous tax breaks they and their donors enjoy, and they should indeed be pushed to give more to groups mainstream philanthropy often ignores.

And instead of griping about the plunge in the value of their assets all the way to their expensive luncheons and gala dinners, foundations should be digging deeper than ever to address urgent social and global problems that simply are getting worse in the economic crisis.

But forcing foundations to pick their boards and make their grants to better reflect the complex demographics of the communities they serve would betray the free choice in which democracy and the charitable marketplace are rooted and on which their survival and success depend.

And where would the mandates stop? Should foundations also be required to make their boards and grants better reflect the broad range of spiritual belief, political affiliation, sexual orientation and cultural taste in their communities? And who would be the final judge of whether the makeup of the board and grants was correct?

The pain and suffering the economic crisis is causing for millions of people, including the most vulnerable among us, underscore the need to foster a charitable marketplace that will expand and improve giving and its impact, and produce the most effective solutions to our most urgent social problems.

That requires a charitable marketplace that is open, competitive and fair.

Nonprofits must be free to develop the strategies and partnerships they believe will strengthen their operations, more effectively serve their clients, and better engage givers.

Foundations and individual givers must be free to invest in the charitable causes they choose.

And because they have failed to show they can police themselves, nonprofits and foundations must be subject to tougher regulation that is even-handed and requires they be more open and accountable for the way they do business.

Regulations also must require that foundations pay out a bigger share of their assets in grants.

Foundations now must pay out only five percent of their assets each year, and they can count overhead costs as part of that payout.

In donating their assets to foundations, givers dedicate those assets to support charitable causes, and receive big up-front tax breaks in return.

Instead of sitting on their assets, foundations should give more of those funds to the charitable causes they were donated to support.

In a collapsing economy, the tired claim by foundations that paying out more of their assets will force them out of business rings hollow, whiny, self-serving and plain selfish.

With Washington policymakers at a loss to know how to fix our malignant economy and overwhelming social problems, foundations and nonprofits need to get over their sense of entitlement, face reality and make their operations and programs leaner and smarter.

Moving beyond their belief that their cause alone entitles them to the support they need, nonprofits must prove their value and effectiveness in a fiercely competitive charitable marketplace that will get only more cut-throat as the economic crisis deepens.

Foundations, which do not get a license to operate virtually unchecked simply because they control donated wealth, need to stop making empty promises that they can police themselves.

Instead, foundations must start giving the taxpaying public a full accounting of their operations and a fair return on the tax breaks they and their donors enjoy.

In the face of the damage the imploding economy is causing, the indispensable role the giving sector plays in addressing social and global problems has never been more clear.

Playing that role effectively will require that givers and nonprofits alike stop complaining and instead develop strategies and partnerships that can succeed in the charitable marketplace.


  • At 10:39 AM, Blogger Betsey Russell said…


    While I admire your ability to argue for both charitable free will and increased regulation in the same breath, I think perhaps the real question put forth by you and other columnists (especially Pablo Eisenberg), is what value our society places on the concept of charitable endowment. I view foundations as a sort of "charitable savings account" for our society. I don't advocate growth of endowment just for growth's sake, but I think having stores of charitable wealth that can produce income for grantmaking in perpetuity is valuable. Apparently others share this view, since almost every state in the country has laws on the books governing how endowment assets should be invested with an eye toward protecting them (UMIFA), and roughly half the states have updated those laws in the past 18 months or so (UPMIFA).

    In good economic times, I think the earnings from those endowments should be the equivalent of "charitable venture capital." What other organizations can take risks and try new ideas in the way independent foundations can? (Admittedly, there are too many who are way too passive in their grantmaking, but I suppose one could argue the value in that as well.)

    In times like these, ideally, foundations should be able to dip into this "savings account" to help out with the overwhelming need. But the catch is, those endowments have already taken a beating, and legislating a higher payout right now won't make that money come back. In fact, thanks to current excise tax rules, it would result in another big hit to endowment balances once the markets turn around.

    So, if we are going to discuss measures that will deplete the nation's charitable savings account in the near term, we also have to look at what we'll do to rebuild it – that is, if we can agree that such a savings account is of value to our society.

    -Betsey Russell


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