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Foundation Leaders Debate Problems Outlined in New Report

WASHINGTON (AFP eWire - Jan. 20, 2004) - Foundations have failed to adequately address the issues of effectiveness and accountability, opening the door for Congressional and public scrutiny, argued the author of a new report examining the foundation environment.

A panel of foundation leaders debated the points in the monograph 'Trouble in Foundationland: Looking Back, Looking Ahead' at the Hudson Institute's Bradley Center for Philanthropy and Civic Renewal in Washington, D.C., on Jan. 15.

The monograph is the first in a series of reports on foundations to be released by the center. 'Foundationland' is expected to be available to the public in February.

 Frumkin
The report was written by Peter Frumkin, associate professor of public policy at Harvard University's John F. Kennedy School of Government, where he is affiliated with the Hauser Center for Nonprofit Organizations. He's also author of the book On Being Nonprofit.

Frumkin argued that foundations have failed to decide how to truly measure effectiveness of their work, which has led to cries that foundations are not accountable. To combat this, foundations have become more transparent. Though laudable, Frumkin said, transparency is not accountability. Instead of developing accountability mechanisms that are two-way streets in which foundations will listen and act on suggestions, foundations have simply provided more information to the public - a one-way street.

All of this has led to the hiring of more staff and the increased professionalization of foundation staff, Frumkin said. With the increased professionalization of philanthropy, the private values of donors are left out. Instead, grantmaking is left to staff and has become more agnostic, institutional, bureaucratic and homogenous, according to Frumkin.

However, panelist Pablo Eisenberg disagreed with Frumkin's assertion that professionalization was detrimental to the field. Eisenberg is a senior fellow at Georgetown University and a leading speaker on the role of philanthropy, government accountability and reform, and the achievements and problems of the nonprofit sector.

 Eisenberg
For the most part, professionalization is a positive aspect of the field, Eisenberg said, but some of the professionals are 'inexperienced' and 'gutless' and are hired precisely because of those qualities. Many foundations want staff who will go along with the CEO, a person who is often 'ultra collegial, super cautious' and goes with the flow. There is 'an increasing obsession with evaluation by people who've lost faith in their own judgment,' he said.

'We need higher quality folks in the profession of foundations,' Eisenberg said. 'It's not professionalization [that's the problem]. We need better people.'

The H.R. 7 payout debate

The panelists also discussed the atmosphere surrounding the debate over the foundation payout rate and the proposed change to it introduced in the Charitable Giving Act, H.R. 7, last year.

Under current law, private foundations must spend 5 percent of their endowment annually on 'qualifying distributions' - grants and other program expenses. However, 'reasonable and necessary' administrative expenses can be included in the 5 percent figure. Section 105 of the H.R.7 would change the rules to exclude some administrative expenses from the required 5 percent payout, making it difficult for foundations to maintain their underlying endowment, many foundations argued.

Arguing over whether the payout rate should be raised missed the debate, Frumkin said. Foundation payouts need to be mission appropriate, and just as foundations are very diverse in their missions and causes, the payout rate needs to be diverse, he said. Some foundations work on short crises and therefore may have a higher payout rate than those who work on long-term social ills.

Frumkin said he was surprised that the foundation community never developed a good case for the need to spend money on professional salaries rather than grants. They should have provided examples of situations in which salaries and other administrative costs were more than offset by an increase in philanthropic effectiveness, Frumkin said.

Equally surprising was the silence of many nonprofit leaders in the H.R. 7 debate and that some actually spoke out against changing the payout rule, even though it could have released more foundation money for grants for nonprofits, he added.

(The Senate and House passed different versions of the Charitable Giving Act, which has not yet reached final passage. For more information, visit the CARE Act/Charitable Giving Act section of the AFP website.)

Where do we go from here?

So, what's the next step? Frumkin says the foundation world
 Boris
needs to confront the two core issues of effectiveness and accountability, determining appropriate effectiveness measures and a true accountability system.

Elizabeth Boris, founding director of the Center on Nonprofits and Philanthropy at the Urban Institute, said the sector needs to address some larger questions, including:

  • Should foundations give more money?
  • Is growth for growth's sake good?
  • What role do we want the foundation field to play?

Panelist Alan Abramson added that there's a 'dearth' of data and research on foundations, and that needs to increase.

'Our understanding of foundations remains very limited,' said Abramson, leader of the Aspen Institute's Nonprofit Sector Research Fund and Nonprofit Sector Strategy Group.

The Bradley Center expects to make available the final version of 'Foundationland' in February. A transcript of the Jan. 15 program will also be available on the Bradley Center website in the near future.

Member feedback

Do you have an opinion on the state of foundations or response to comments in this article? eWire wants to hear from you! Email your comments to Melanie Padgett by Sunday, Jan. 25 for a possible follow-up article.

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