Speeches

Remarks by Susan V. Berresford at the National Association of Attorneys General, National Association of State Charity Officials (NASCO) 2003 Charitable Trust and Solicitations Seminar

Brooklyn, NY September 15, 2003

I am pleased to have this chance to discuss ways we could work together to strengthen American philanthropy. I stress the word "together" because people often assume that foundation presidents and those responsible for regulating philanthropic institutions are adversaries. And sometimes, we are. But we can also be allies.

I view us as sharing three mutually reinforcing goals. We want to:

• increase compliance with foundation related law,
• ensure that philanthropic dollars are used fruitfully,
• and build public knowledge about philanthropy's role in our democracy.

All of us in this room know that much has to change before we will be content with progress towards these goals. In large part, that is because the field of philanthropy has grown dramatically in recent decades and the systems needed to monitor, support, and strengthen it have not kept pace. We still treat philanthropy as an old fashioned "do it yourselfquot; business, based on a natural helping instinct, and needing scant attention. Philanthropy will always have a "do it yourselfquot; quality and be found in some form in every culture in the world. But as organized in the U.S. today, it needs a good deal more attention than it is getting. We should give it more attention, not just to correct wrongdoing. Our overriding objective must be to unlock more of philanthropy's potential to support progress and reduce human suffering.

To do so we need to urgently address each of the three goals I mentioned—compliance, effectiveness, and public understanding. Today I want to talk about these goals and how collaborative effort between foundations and regulators can bring about progress.

First, as you probably recognize, the greatest challenge with respect to increasing compliance lies in numbers. There are over 60,000 foundations across the nation—twice as many as there were just a few decades ago. The way the field currently operates, probably no more than 6,000 will have a staff or board member formally engaged in one of the field's membership organizations that provides technical assistance and emphasizes legal compliance. As you know, most foundations start as small entities created by a lawyer to help a wealthy family pursue its charitable interests. Most stay small, spending down over time. They not only operate outside the field's membership associations, but also without serious review by a regulatory body because those agencies are so grossly underfunded.

Astonishingly, we have few sources of reliable and systematic data about how the 60,000 or so foundations operate. So we have to guess. My over 30 years of experience in philanthropy leads me to guess that most do well in expressing a donor's generosity and interests. But at the core of the compliance issue are the minority of foundations that operate improperly, whether from ignorance, disrespect for the law, or mistaken belief that the money is still "ours to do with however we wish.quot; Finding and changing these scofflaws will be tough, given the currently limited resources of the IRS and State Attorneys Generals' charities bureaus, and currently weak voluntary monitoring by infrastructure groups.

But we can do much better than we are now doing. Over the last decades, while the number of foundations has almost doubled, the philanthropic infrastructure has also grown. New organizations have appeared. More of their growing capacities could be directed towards compliance issues if such a goal was proposed compellingly and supported. The field may, in fact, be at an important crossroads where a choice of this sort now needs to be made.

There are now 29 regional associations of grantmakers across the U.S. They are dedicated to good practice and information sharing. They are stronger in some regions than others, and a few such as the one in Michigan, are exemplary. They have untapped potential to reach a wide variety of donors in their geographic areas.

The Association of Small Foundations, just 5 years old, has 2,900 members and is experimenting with how-to materials reaching another 1,000 foundations under a Ford grant. The Association recently notified 38,000 foundations about its available products. Its budget and staff are small but they can grow.

The National Center for Family Philanthropy is a new network with over 7,000 subscribers and a web site that gets over 1200 hits a day. These are new and potentially powerful "word-of-mouthquot; and materials-based outreach systems that might be willing to turn more of their attention to compliance.

In addition, you certainly know about the Council on Foundations and the Philanthropic Roundtable—both national membership organizations dedicated to compliance and good grantmaking. The Council is by far the more active of the two in the compliance area. It has recently beefed-up its process for correcting improper donor behavior, including being willing to work with foundations in and beyond its own membership. The Roundtable has strongly emphasized enforcement related to donor intent.

These old and new "infrastructurequot; organizations and others offer the potential to help the field do better with accountability and compliance. They are not currently organized to do so aggressively or together. They don't currently have the resources to pull off such an ambitious effort.

I am not here representing anyone but the Ford Foundation, so I can't speak for the infrastructure groups. But I can imagine a new approach. Particularly after the heat generated around HR7 and the CARE Act, it is possible to imagine a plan for a compliance campaign in which different infrastructure organizations play to their own strengths and have adequate funding. Such an effort would need to be designed in a partnership between our regulators, and infrastructure groups and it would need to be part of a larger strategy.

The other part of the strategy is obvious. It would need to involve strengthening the governmental oversight system. Few oversight agencies seem well-equipped for the responsibilities they hold. Many need staffing, technology and funding they don't have. Private foundation excise tax payments ought to be directed to the IRS Exempt Division, as was originally intended when the tax was imposed. We should also create a system of state fees for state monitoring functions. In addition, we will need reliable data and analysis of facts and patterns so we know reality from myth - such research is a familiar domain of foundation funders. I believe that the philanthropic community would support all of these kinds of activities.

The second challenge before funders and regulators of philanthropy is seeing that money is well spent—meaning that money from funders and actions taken by their grantees lead to positive change. Key to this is making available knowledge about effective grant program design and management. Too often, the "do it yourselfquot; aspect of philanthropy gets in the way of improved performance. But you and I know that there are lessons grantors and grantees have learned the hard way that can save others frustration and failure.

Again, I see opportunities for real progress. Over the last few years several organizations have created written, web based, CD and video materials that put good philanthropic program experience into the public domain. For example, the Council on Foundations has a new web-based training program for new members interested in learning the basics of grant making from experienced foundations. The program includes matching the online learner with a mentor. Most of the larger Regional Associations of Grant makers offer intensive programs for new grant makers and trustees that cover program practices.

The California Wellness Foundation and Kellogg have on their web sites material about what strategies made their grant making effective or ineffective. Kauffman in Kansas City, Robert Wood Johnson in Princeton and Packard in California have monographs on improving the practice of philanthropy that will be distributed through the Foundation Center this Fall. These are just a few of the growing library of materials.

Ford has its own foundation-run project called GrantCraft. It collects and distributes practical grantmaking experience for anyone who is interested. GrantCraft has a Web site filled with guides, teaching cases, and videos created at Ford covering a wide range of program and managerial issues that foundation practitioners face. I think GrantCraft has found a way for grantmakers themselves to convey grantmaking experience that is practical and real, rather than abstract. Most of the visitors to the web site are foundation staff, trustees or advisors. But it is also a resource to government agencies running grant programs as well as to non-profits trying to understand how foundations work. In the last 18 months, GrantCraft's web site has had over 30,000 visitors who downloaded 22,000 guides. Check it out at GrantCraft on the web.

Now, let me try to tie together my first and second points about legal compliance and grantmaking effectiveness. New user-friendly, "How Toquot; materials could be developed jointly by foundation representatives and regulators around accountability issues. The materials could be aggressively marketed to identified audiences, capitalizing on the growing capacity of infrastructure organizations and the sense of urgency we all have about this. Early stage pilot efforts would be tried before any larger regional or national campaign.

A boost to this effort may come from recent discussions among a loosely affiliated set of Midwestern foundations. They met to consider forming a task force that would explore the definition of standards and indicators of philanthropic impact. They know that standards have to avoid a "one-size-fits-allquot; approach and instead promote ranges that reflect good practice. They may also help define good spending behavior, in other words—what should things really cost in a foundation? They have in mind exploration of accreditation models for foundations, analysis of the nature and prevalence of abuses, and generating ideas about strengthening the field's infrastructure. They and other regional groupings might become a powerful force pushing the reform agenda.

This brings me to the third challenge we need to address together—how to build Americans' knowledge about the role foundations play in our democracy. We know from survey data that the public starts with positive attitudes—when asked, people on the street say that foundations are good for our country. But most can name only one foundation. Very few can recall an accomplishment they tie to a foundation. In part, that reflects reality—that grantees in the third sector do the work that brings about change, while most foundations remain more in the background, providing funding and consultation. But these attitudes mean that we have a complex educational job ahead.

Our country is fortunate to have a flourishing third sector composed of more than 1.5 million non-profit groups. In many places, we are totally dependent on these non-profits for essential services, care of needy people, reform voices and cultural expression. But although they are central to our lives and communities, few Americans grasp the idea of a third sector. Even fewer understand how basic freedoms inherent in the third sector often rest on philanthropic dollars. Only a tiny number clearly see the connection between philanthropy, the third sector and our country's democratic ideals.

It would be good if more of the public recognized the ways that philanthropy reinforces democratic traditions. For example:

• foundations strengthen the diversity of perspectives in our population by supporting groups that range from "establishmentquot; to "underdogquot; and points in between.
• foundations help support organizations through which men, women and children participate in civic affairs.
• foundations help marginalized groups gain a foothold on the success ladder.
• foundations help test models for urgently needed social innovations before they are ready for political prime time.
• foundations reflect the idea that not everything needs to be driven by markets or politics to be useful.

We must remember that philanthropy reinforces these principles and practices of democracy, but doing so can generate criticism. Not everyone wants to hear the "underdog'squot; voice or see newcomer populations get scarce jobs or housing. Sometimes foundations get criticized for doing this work. But our history suggests that democracy benefits when new ideas and energy rise to the surface and find their place, even when the process involves conflict.

More of us in the sector should speak and write about the intersection of philanthropy, democracy and freedom. It is a subject that could be thoughtfully explored in social studies curricula and by academics and journalists. Doing so might help protect the basic freedoms inherent in philanthropy that we value, including the freedom to spend down or set up a fund in perpetuity, and freedom to give alone or in association with other donors in a fund.

So let me conclude by noting again, that we can make significant progress. Together we can dispel the notion that "do it yourselfquot; is all that we need. Regulators and philanthropic organizations can join forces to direct more of our field's energies toward compliance and effectiveness.

Philanthropy has some bad apples—and a few of them are really bad. This situation reminds me of ideas that grew out of community policing, particularly the "broken window" theory. That theory suggested that police alone could not produce order and law abiding behavior. Instead, communities had to establish standards of behavior. So broken windows had to be fixed; graffiti had to be removed or painted over. These repairs signaled that a community would not tolerate decay, destruction or anti-social acts. Yes, police were needed to take on the tough cases but communities had to make clear their disapproval and intolerance of bad behavior.

Our field is a bit like that now. Regulators can't do it alone with philanthropy configured as it is. Since it looks like the field will stay as it is for a while - 60,000 or so foundations etc. - we have to mobilize other resources such as the growing network of infrastructure groups to help establish and maintain standards.

Much in philanthropy is admirable and the picture can be brighter still if we take advantage of this moment and when compliance and effectiveness are in the spotlight work together. I am confident that foundations and their growing infrastructure groups will welcome working with you to bring about some of the changes we need.