A Misguided Call for “Reform”

In a toughly-worded op-ed in Sunday’s New York Times headlined “Who Will Watch the Charities?”, Inside Philanthropy founder and editor David Callahan argues that philanthropy “is a world with too much secrecy and too little oversight” and that “perhaps no sector is less accountable to outsiders.”

Callahan’s op-ed confusingly conflates operating charities (most of which get by on small budgets) with large foundations and ultra-wealthy donors, and it’s not always clear which entities are the focus of his concern. But he seems especially worried about large foundations, and he points in particular to the Clinton Foundation as an example of the consequences of “lax oversight.”

(An aside: The Clinton Foundation, it seems to me, is actually a fairly unusual organization — in a whole host of ways — in the landscape of U.S. philanthropy. So I am not sure how much we should draw conclusions about the sector from its troubles, whatever they may be.)

While I applaud the call for more openness, it’s certainly not clear to me that other sectors — business or government — are exactly leading the way on the transparency and accountability fronts. Callahan calls the nonprofit sector “the Wild West,” but that feels like a more apt description of the finance industry pre-2009.

But, more importantly, most of Callahan’s proposed solutions are neither practical nor grounded in any sense of what’s transpired in the nonprofit sector in recent decades. Some would do more harm than good.

Callahan proposes four “reforms.” The first, to bring “more transparency to charitable donations,” is hard to argue with.

But it goes downhill from there.

He calls for: “varying levels of tax exemption, or none at all, depending on the actual public benefit provided by a nonprofit, measured independently”; an increase in mandated payout for “foundations and other philanthropic funds” to “say 10 percent”; and, finally, a “better accounting of whether philanthropic dollars are effectively spent” because “it’s problematic that there’s no way to assess the performance or impact of such a large, rich and influential part of American society.”

To ensure all this happens, Callahan argues, “It’s time to create a new federal bureau to police this sector.”

But do we really want to hand over judgments about the relative worthiness of charitable goals to a central government authority? Callahan does not seem to understand that the “independent measurement” of “public benefit” that he calls for as a way to assess how much tax exemption a contribution deserves is not as simple as it sounds. Is a charity or foundation working to ensure convenient access to safe abortions providing public benefit? What about one working to promote abstinence-only education or to encourage adoption instead of abortions?

Is a charity or foundation supporting school choice and the creation of charter schools providing public benefit? What about a charity or foundation opposing the creation of charter schools and encouraging a focus on strengthening traditional neighborhood public schools?

It depends, of course, on your point of view.

Look, I agree wholeheartedly with Callahan that assessment is crucial — I’ve spent 14 years working on this with my CEP colleagues. But assessment happens in the context of goals, and goals are shaped by values and judgments which, in a free and democratic society, will vary. As John Gardner noted, the nonprofit sector is one in which organizations are created “to honor the worthy and smite the rascals with everyone free to define worthiness and rascality.”

Callahan quotes Tocqueville, but seems not to grasp that the vibrant civil society that Tocqueville observed is grounded in a belief that citizens should be free to pursue their goals — their visions of what serves the public good — and not be forced to bow down to a central government’s conception of what that is. (For more on the importance of this kind of freedom, see, for example, the American Revolution.)

Also strangely missing from Callahan’s op-ed, which refers to a “backdrop of secrecy” in the sector, is any acknowledgment of the important changes over the past two decades. In fact, there is much, much more information readily available to donors and the public today than there was 20 years ago. From Guidestar to Charity Navigator to BBB Wise Giving Alliance to GiveWell to GreatNonprofits, and others, there are now numerous resources available to those seeking information about a nonprofit’s finances and its goals and strategies.

None are perfect, of course, but for Callahan not to even nod to these efforts seems flaky at best.

When it comes to assessment, there’s been a similar shift in the sector, which, again, Callahan ignores.

“Ideally, the philanthropic sector would take the lead in finding ways to assess itself,” writes Callahan, presumably referring to foundations.

But, in fact, this is happening. Foundations have spent considerable energy and resources on assessment in recent decades — and the trend has been toward greater effort and prioritization of assessment, as CEP’s research has documented.

  • CEP’s very existence is evidence of this: the fact that several hundred foundations have used our assessment tools (including nine of the largest 1o U.S. grantmaking foundations) or that nearly 50 foundations support our work — and our research focused on improving foundation practices — is telling. (Certainly the more than 300 leaders of large foundations who gathered at CEP’s conference two weeks ago to focus on assessing and improving performance seemed pretty sincere to me.)
  • The Evaluation Roundtable — a network of evaluators of staffed foundations — meets regularly to share assessment strategies and lesson learned.
  • Foundations such as Robert Wood Johnson Foundation, The Wallace Foundation, and others have for decades invested significantly in evaluation — including randomized control trials — and routinely made public the results of their evaluations, whether good or bad.
  • The Edna McConnell Clark Foundation has championed and executed an evidence-based approach to funding and attracted the support of numerous other foundations and donors — support to nonprofits delivering great results from Nurse Family Partnerships to Youth Villages and a host of others.

And, in an op-ed about transparency and accountability of foundations, you’d think Callahan would have mentioned that Foundation Center has been assertively promoting foundation transparency through its Glasspockets initiative. Or that a consortium of large foundations — including Hewlett and Ford — recently launched the Fund for Shared Insight to encourage foundations to be “more open about what we do, how we work, why we make the decisions we do and the lessons we have learned — both the good and the bad?” Or that the foundation-funded National Committee for Responsive Philanthropy (NCRP) launched last year an effort called Philamplify to provide very public feedback to foundations.

But no.

None of the many efforts to address the very issues he writes about are mentioned by Callahan! Even in the context of a tight word limit, it would have been possible to make clear the range of work underway.

What about the call for a higher payout? I’ll leave it to the foundations to explain why a mandated 10 percent payout would be challenging, especially for those that are seeking to honor their donors’ wishes to manage their foundations to exist in perpetuity. I’d be the first to agree that too many donors and foundations default to perpetuity without sufficient thought, but it hardly seems fair or appropriate to arbitrarily double the payout requirement on those institutions, which were created with the understanding that they’d be allowed to exist in perpetuity, by legislative fiat.

I am all for more debate about the roles and responsibilities of foundations and nonprofits. I am all for asking more of the tough questions. I am all for calls for more focus on assessment, openness, and transparency. And I think even wacky, misguided policy proposals can be healthy to stir things up.

But can we please have at least a little context, a little nuance, and just a little more grounding in the facts?

Phil Buchanan is president of CEP. CEP is not a policy-oriented organization and the views represented above are Phil’s — our individual board and staff members undoubtedly have a range of perspectives on these issues. Finally, a disclosure: some of the funders mentioned above are clients and/or provide grant support to CEP.

Follow Phil on Twitter at @philCEP.

effective philanthropy, foundation effectiveness, foundation performance, foundation strategy
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