Archive for the ‘Foundation Hall of Shame/Stupid Foundation Tricks’ Category

What Price Democracy?

December 27, 2012

There’s an old joke about a man who asks a woman to sleep with him for $1 million. She agrees, whereupon he asks her to sleep with him for $1. “What kind of a girl do you think I am?” asks the woman indignantly. “We’ve settled that,” replies the man, “We’re just arguing about the price.”

This came to the Nonprofiteer’s mind in response to this story about the price of the Broad Foundation’s generosity to the schools of New Jersey. A recent Broad Foundation grant stipulates that it will be available only as long as Chris Christie remains governor.

The Nonprofiteer has often argued that private philanthropy in education (and other areas) is at best a mixed blessing, because it reflects approval of the notion that public assets should be run according to private preferences.   But she never imagined any philanthropy would go this far, offering its generosity only on condition that the public sacrifice its right to choose its own leaders. The question isn’t whether or not Chris Christie is a good governor; the question is whether the Broad Foundation—as opposed to the voters of New Jersey—should get to decide that.

Sure, you can say that no voter is likely to sacrifice his or her rights for a grant of $430,000, but then we’re just arguing about the price. And sure, in form, the voters of New Jersey still hold the power, but the Broad Foundation grant gives them to understand that the cost of exercising their power is losing a lot of money—or, put another way, that the cost of the money is their democratic rights. By comparison, “the vig” (excessive interest rates) charged by organized crime look like a bargain.

Not content with specifying the outcome of an election, the grant’s terms also exempt from disclosure anything having to do with the grant, purporting to provide it with immunity from application of the Federal Freedom of Information Act. Perhaps this was intended to minimize the impact of the grant on voters: What they don’t know can’t influence them. But when the subject of the grant is the most public of concerns—the education of the next generation—a commendable motive doesn’t excuse unacceptable means. Voters need to know on what basis decisions are being made about their schools so that they can change the decision-makers if they disagree. The grant terms are an effort to protect the foundation and its direct beneficiary, the current Republican government of New Jersey, from that straightforward democratic notion.

Defenders of charter schools and other forms of privatization of public schools argue that such restructuring attracts private philanthropy that would not otherwise be available to those schools. That’s probably true, but is that a cost or a benefit? It’s a slippery slope, from good-willed private philanthropy in support of public goals to a system in which private goals predominate—specifically the private goal of eliminating public input (or even public knowledge) from the governance of the public schools.

We could argue about whether the loss of public input would be worth it if the donation were $430 million. But under the current circumstances, just what kind of girl is New Jersey?

A cheap date, apparently.

Dear Nonprofiteer, If a Board member’s gift falls before year-end, does it make a sound?

November 30, 2012

Dear Nonprofiteer,

I serve on the board of a nonprofit. 100% of our board gives in some form monetarily throughout the year through event sponsorship, general giving, donations at events, etc. With all the year-round giving, many of us were not making a gift to the annual appeal. Recently, we were informed that funders look at what percentage of our organization’s annual appeal total comes from board members. This has the board scrambling to make sure everyone gives a significant sum here at year’s end. It also has many of us questioning the timing of our gifts for the next year. Do we not sponsor the gala or give to summer programs, but instead save that donation for the annual appeal? There is only so much to give for many of us.

While I know that funders want 100% of board members to give, the desire for that giving to come in the form of the annual appeal is new to me. I find it especially surprising that they would ask what percentage of the annual appeal comes from board members. Have you heard about this stipulation? Is it widespread?

Obviously we all want what is in the best interest for our organization to be positioned for future funding. However, I don’t want to lose the help and momentum the organization gets from year-round board giving if it isn’t necessary.

Signed, Surprised and Scrambling

Dear Surprised:

First, let the Nonprofiteer congratulate you on having a Board that gives 100%. It’s bizarre to imagine that some additional hurdle should be placed in the way of a Board which has already cleared that one. Institutional funders are notorious for always asking for one more thing; but this hoop is a brand-new one.

The Nonprofiteer suspects that what we have here is a failure to communicate*—that is, a misunderstanding of what the funder actually wants to know. If the program officer asks (or the guidelines say) “What percentage of your annual fund comes from your Board members?” the English translation is most likely, “What percentage of your annual donated income comes from your Board members?” NOT “Which appeal do your Board members respond to?”

The funder’s concern may be for institutions whose Boards donate 75% of the group’s contributed income, reflecting a failure to reach out into the broader stakeholder community. Conversely, the funder—which mostly doesn’t deal with Boards as generous and active as yours—wants to know if Board member donations are significant or merely pro forma: if every single member of the Board gave $1, that wouldn’t be the kind of Board participation the foundation wants to see, or intends to spark through its inquiry.

If in fact the funder cares about the Board’s response rate to the annual appeal, meaning the end-of-year solicitation letter, this is a classic example of a wider problem in the nonprofit community: the “it doesn’t count” syndrome. Oh, members of your Board buy and sell tickets to the benefit event? “It doesn’t count” because there might be something involved in the transaction beyond a straightforward check and tax receipt. “It doesn’t count” syndrome leaves Board members feeling unappreciated and nonprofit executives feeling unsupported; so repeat after the Nonprofiteer: money is fungible; IT ALL COUNTS.

And if the funder disagrees: so the funder is stupid! Having money is no guarantee of having brains, and that’s as true in the philanthropic sector as anywhere else, though it’s harder to remember when we’re spending all our time trying to please people with money.

The Nonprofiteer’s advice: call the program officer and say, “Do I understand you want to know what percentage of the response to our end-of-year solicitation letter—what we call the annual appeal—comes from the Board, or do you just want to know what percentage of our annual contribution income is donated by the Board?” If s/he really means the former, then yes, just shift the timing of your contributions in future years.

“Teach your funders well . . . . just look at them and sigh, and know they” don’t understand you at all.**

——————————–
*Cool Hand Luke
**Crosby, Stills, Nash and Young: “Teach Your Children”

Dear Nonprofiteer, Who’s really to blame for bogus job descriptions and pathetic salaries?

April 5, 2012

Dear Nonprofiteer,

I was hoping you might be willing to follow up on your last post on your blog because I felt it was incredibly powerful. I hope it is being reblogged and reposted as much as it should.

What does a professional do when they see a job that sounds amazing but the salary is lowballed? Do you address it in a cover letter, if they gave an insultingly low number outright in the job description? What about when it sounds great and you get an interview and they make an offer and it is $15K less than what’s in line with the position? I know anyone can just simply decline, which I’ve done myself.

But I feel like leaders in the sector have a duty to say something, to help move towards realigning expectations of founders and staff who offer insultingly low pay, especially for organizations that offer critical services that honestly won’t select themselves out of the sector. What are your thoughts on this?

It doesn’t seem like we’re at a transparency point in the sector where we can say, “If you want the best candidate for the position you have to pay competitive wages, if you want the fourth or fifth best or most desperate candidate, you can get away with what you’re offering.”

Of course, I feel particularly stung after two painful lowball offers in the past four months that I’ve had to turn down, but that’s sort of beside the point. I never realized that this was such a pervasive problem. It seems especially bad in Chicago, for whatever reason, compared with my compatriots in DC, SF, and Seattle.

Sincerely, Looking at the Bigger Picture

Dear Looking,

The Nonprofiteer understands there to be two parts to your question.  The first is, “What is a professional to do when faced with an unacceptably low salary offer?”   The answer to this is that you have nothing to lose (but your chains) by responding—in person or in writing—“I realize you may not be as familiar with the nonprofit job market as I am, given that your agency only looks for an Executive Director once every many years; but the amount you’re offering isn’t suitable to the position you’ve described.  The range is more like [and then cite the minimum you'd accept and the maximum you can really envision].”  There are only two possible answers to this: “Well, we don’t have that kind of money and don’t intend to get it,” in which case you know you’re dealing with a Board of Directors you wouldn’t be able to manage anyway; or “Oh, really?  Well, is there any way we can make this work?” in which case you’re suddenly negotiating.

There’s no need to say, or even think, that an offer is insulting: if you can’t assume good faith on the part of agencies, at least recall that they derive no benefit from insulting prospective employees.  Though it feels otherwise, no one is commenting on your qualifications by offering you a low salary.  They’re simply hoping they can get someone great for cheap, which if you think about it is the entire nonprofit model.  So consider yourself someone whose first task is to educate your prospective employer about how things ought to work.  Again, if the employer is uninterested in that education, good riddance to bad rubbish; whereas if it’s interested, you may actually be able to get to ‘yes.’

But your second question is of much broader application: What would it take for the sector to begin to offer wages that are appropriate to the skill level being sought?  And the answer to that, as to most questions about how to fix nonprofits, is ‘more money and more understanding from big institutional funders.’  As long as foundations and social venture capitalists pound the drum for a strict ceiling on administrative expenses, nonprofits will continue to skimp on paying for talent.  The people with money are the thought leaders in the sector (isn’t that always the way?), and they’ve made it acceptable to answer reasonable salary demands with the enraging, “Well, no one goes into nonprofit work to get rich.”

Take a look at Watkins Uiberall’s excellent comparative compensation survey from 2010.  Though it’s from Tennessee and from two years ago, it will provide a basis for conversation about what’s appropriate for many jobs in the sector.  As data like these are spread (including by prospective employees), employers will come to understand the way things really work, vs. their fantasy of hiring President Obama for a community organizer’s stipend.

Nonprofit Boards, meanwhile, should consider the non-trivial possibility that shorting their employees on salary and benefits will ultimately lead to a unionization drive.  The Nonprofiteer is a union girl herself, but most Boards of Directors and nonprofit managers don’t agree.  So somewhere in any conversation about salaries one might gently slide in the question, “If your pay scale is so low, how do you avoid the unions?”  You won’t get an answer but you’ll be providing food for thought, and the longer employers chew on it the less chintzy they’ll be.

Existing forever versus doing some good

March 28, 2012

An op-ed piece a few weeks ago in the Wall Street Journal (behind a paywall)  argued that donors should construct their foundations to spend down assets as rapidly as possible, lest the foundations end up supporting causes their donors would revile.  This familiar argument comes with a familiar whipping-boy: the Ford Foundation, whose enthusiasm for assisting the poor and marginalized was certainly not shared by its eponymous founder Henry.  The op-ed piece, like many of its kind, focuses on the question of donor intent, arguing that only a brief payout period can assure that the donor’s intent is served.

The Nonprofiteer has never cared particularly about the intent of dead donors.  First of all, they’re dead, and while death may not extinguish intent as a matter of law it certainly does as a matter of common sense.   Second, how much better off do we really think the world would be if Ford’s foundation had spent all its money on Ford’s enthusiasms, such as promoting publication of the scurrilous anti-Semitic tract The Learned Protocols of the Elders of Zion?   Third and most important, the  tax-free status of foundations is supposed to encourage philanthropy, not the accumulation of permanently idle tax-free money.

The Nonprofiteer has long argued that the minimum expenditure required of foundations is way too minimum, and that setting up a structure to give away 5% of income shouldn’t entitle a donor to a 100% tax shelter–whatever his/her intent.  Most likely that intent was to escape from taxation, without too much more thought than that.

So let’s think about the issue not from the standpoint of donor intent but from the standpoint of social good.  Which is more useful for a philanthropy: remaining around in perpetuity, to grapple with issues that may arise a generation or three from now, or spending down in the present and relatively short-term future on issues the donor understands and cares about and which in any case are currently urgent?  From the phrasing you can tell the Nonprofiteer’s position: spend it down.

Julius Rosenwald saw the wisdom of this approach when he created a program of fellowships for African-American artists for their professional development.  Rather than keep the fellowships around in perpetuity, he ordered that the principal be awarded completely within 5 years of his death.  As a result, virtually every mid-20th-Century African-American artist you’ve ever heard of received a Rosenwald Fellowship: Ralph Ellison and Romare Beardon and Katherine Dunham and Gordon Parks and many others.   The value of what Rosenwald did, giving artists enough money so they could work without fear or distraction, is literally incalculable.

But also as a result, virtually no one remembers Julius Rosenwald, or at least not his fellowship program.  So that presents the question: are we in the business of fostering greatness, or memorializing it?  Is remembering a donor as important as creating work through a donor’s generosity?  Again, to the Nonprofiteer the answer is self-evident.  She’d rather be grateful for Ralph Ellison than to Julius Rosenwald.

Look, here’s the deal: people will make money in every generation, and in every generation some people will make a lot of money.  If we tax them properly they’ll look for the opportunity to shelter their money in philanthropy.  Why shouldn’t we tax them so that they’re motivated to spend it philanthropically, too?  Like the proverbial Fifth Avenue bus, another chunk of  money will be along any minute.

Sure, there’s a risk of spending too rapidly and with insufficient research (or “due diligence,” as people are fond of saying when they want to pretend that the nonprofit sector is really just like a business).  But the greater risk is the situation in which we find ourselves now, where philanthropies give out amounts insufficient to make any significant change.  No, philanthropy isn’t supposed to be society’s primary source of support, but while people are busy starving government so they can drown it in the bathtub, private wealth can and should step into the breach.

Consider the contributions of the Gates Foundations to the Global Fund to Fight AIDS, TB and Malaria. Can anyone really argue it would be better to hold back on eradicating those diseases, in case there’s some bigger plague later on?  If there is, as AIDS itself demonstrates, we’ll mobilize and raise money for it.  Meanwhile, in case of every ailment, time is our enemy: the later we provide resources, the harder it will be for those resources to have impact.  Thus wasting money is a less significant risk than failing to spend enough to make a difference.

Two things need to happen: philanthropists themselves need to organize their giving so that it ends within a reasonable time after their death, and Congress needs to modify the tax code to require philanthropies to pay out more each year to retain their tax-favored status.  A 10% annual payout–double the current rate–may end up causing philanthropies to dip into principal, maybe even until they’re empty.  But remember the words of Citizen Kane as he contemplated the financial difficulties of his newspaper empire: ” I did lose a million dollars last year. I expect to lose a million dollars this year. I expect to lose a million dollars *next* year. You know, Mr. Thatcher, at the rate of a million dollars a year, I’ll have to close this place in… 60 years. ”  Let’s take a Kane-like risk of running out of money.

One more story: Some time in the ’90s Joan Kroc stood up at a Ronald McDonald House benefit to announce her annual gift.  Rumor had it she was actually going to make a five-year pledge, and the Nonprofiteer’s table indulged in the parlor game of trying to figure out just how much that would be.   We figured the previous year’s gift ($5M) plus a little bump (so $6M) for each of 5 years, and settled on $30 million.  And then she rose to speak, a little woman holding a torn-off piece of yellow legal paper in her hand.  And she said, “I was going to make a 5-year gift, but then I thought: ‘The need is now.’  So tonight I’m giving $50 million to Ronald McDonald Children’s Charities.”  Everyone at the table fell back in her seat, literally knocked over by her generosity, and also by her insight: The need is now.

Aside from Ronald McDonald, Mrs. Kroc mostly supported causes her late husband disapproved of.  If only he’d given more in the present, he wouldn’t have had to contemplate a future in which his money went to places he despised.  So the donor’s intention and the sector’s need are in sync:

Spend it now.

Give the people at Komen a piece of your mind . . .

February 2, 2012

as they seem to have lost their own.  Komen’s decision to de-fund Planned Parenthood at the behest of an anti-choice Board member reminds us how ready the right wing is to sacrifice women’s health for political gain.

There’s a petition to sign if you want to want to make your voice heard.  If you’ve been a Komen supporter and you now de-fund the organization, your voice will be heard even louder.

The Nonprofiteer has been wondering what to write about . . .

February 1, 2012

but she’d really have preferred not to have this as an inspiration.  There is no excuse for the decision of Susan G. Komen for the Cure, until now a respected source of information and funding in the fight against breast cancer, to defund Planned Parenthood‘s program of providing breast exams to poor women.

In fact, the decision doesn’t even make sense–unless you consider that a recent addition to the Board of Komen is an anti-choice ex-politician from Georgia.  As another commentator has wisely noted, Planned Parenthood will survive this latest injury–the Nonprofiteer’s determination to support the agency has just been redoubled, and probably her gift will be, too–but Komen may not.

Please join the Nonprofiteer in notifying Komen of your distress at its decision to let irrelevant politics endanger the lives and health of poor women, and of your decision to redirect to Planned Parenthood any support you may have been giving to Komen.

A remarkably clear statement of what’s wrong with L3Cs. . .

November 29, 2011

for which the Nonprofiteer can take no credit.  Rather, thanks to her friend, Baltimore tax lawyer Stuart Levine, for laying out so clearly the problem with low-profit limited-liability companies, the latest fad in efforts to do well by doing good.  Stuart’s argument appears in response to, among other things, a recent New York Times report that foundations have increased the proportion of their “grants” which are actually program-related investments, that is, grants for which repayment is expected to a greater or lesser degree.

Words from the wise:

Look, there are numerous “good cases” where one can see that infusion of capital that doesn’t really have to be repaid at market rates makes good sense.  (Actually, government loan guarantees of, say, solar power start-ups falls into this category.)  The problem with allowing 501(c)(3)’s to make these sorts of investments is that the process is subject to abuse.

Say that I want to create “Stuart Levine’s Good Works Foundation.”  The Foundation attracts $10M in tax deductible contributions.  The Foundation uses the cash to “invest” in projects operated either by me or my Aunt Minnie.  While Minnie and I invest our own funds in these businesses, our capital position is ahead of the Foundation’s and gets a higher return, so that the first profit out goes to pay us and, if the deal craters, the biggest part of the hit will fall on the foundation.  (Did I mention the $250K a year consulting fee paid to me by the investment entity?)

I don’t for a minute believe that the Bill and Melinda Gates Foundation is engaged in double-dealing of the sort that I described.  I have less faith in the “Stuart Levine’s Good Works Foundation.”   Has everyone forgotten the Pallottine Fathers?  See here:

http://tvnews.vanderbilt.edu/program.pl?ID=254962

Or, as one might say, everything old is new again.

The burden of proof rests on those who believe L3Cs are essential.  They must demonstrate that the entities’ potential for abuse is outweighed by their capacity to meet needs that are otherwise unmet.  But all that’s unmet so far is that burden of proof.

The Joyce Foundation, the Independent Sector and the facts

November 2, 2011

Ellen Alberding’s interview with the Chicago Tribune in advance of the Independent Sector‘s meeting in Chicago earlier this week pressed nearly every one of the Nonprofiteer’s buttons.  Ms. Alberding, head of the Joyce Foundation, described the Foundation’s approach to what even she characterizes as a perfect storm of increased need and reduced resources in the nonprofit sector:

We do what any good business person would do when faced with reduced resources. We have become very focused on first maintaining support of our core grantees. Foundations are required to spend a minimum amount — 5 percent of our assets. On occasion, we will overspend that in order to keep our grantees whole.

In other words, business as usual.  Most likely the Joyce Foundation’s governing documents prevent its Board from spending its assets down to zero, but there’s no reason why the Foundation shouldn’t use more than the statutory minimum 5% of its $800 million in assets to sustain the work it exists to support.  Foundations are NOT businesses; they exist to give their money away, and only in some vague theoretical sense is an institution with $800 million facing constraints preventing it from giving away more than $40 million.

If Joyce gave only 6% instead, that would be another $8 million available to nonprofits in its areas of concern—a not-insubstantial 20% increase.   What is stopping the Foundation from doing this, other than a misguided sense that preserving its capital is more important than doing its job?

And then the cherry on the sundae:

It’s the position of the Independent Sector that a cap [on charitable deductions] will reduce charitable contributions across the board and diminish support for nonprofit organizations. I believe it’s the administration’s view that the 28 percent cap might have some impact, but it wouldn’t have a dire impact. (But) I think we have to listen to the organizations themselves, who feel otherwise.

In other words, notwithstanding reality, the prejudices of self-interested parties will dictate the organization’s behavior.    Their minds are made up—don’t confuse them with the facts.  But as President of the organization, doesn’t it behoove Ms. Alberding to make sure her members don’t make their decisions based on fantasy?

Grrrr.

Emanuel and the foundations: What price access?

March 29, 2011

In fundraising there’s an old saw that if you want someone’s money, you ask for his advice.  Leave it to the ever-innovative Rahm Emanuel to turn this observation into an ultimatum, telling people equipped with useful advice that it won’t be heard unless it comes wrapped in money.

That, in effect, is the meaning of Mayor-elect Emanuel’s request to a group of Chicago foundations that they pay the costs of his transition, costs  traditionally covered by leftover campaign funds, of which Emanuel has plenty.   In a city whose political culture has long consisted of being punished for disagreeing with or disobeying the mayor, the foundations faced an unattractive choice: call the mayor-elect on his inappropriate pick-pocketing and look forward to 40 years in the desert, or pay the man the $2 (or $2 million, as the case may be) in order to be heard.

The Nonprofiteer doesn’t blame the foundations for ponying up, though she wishes they hadn’t: their job is to influence public policy and make change, and the mayor’s office is an important route (sometimes the only route) to doing so.  But the Emanuel administration-in-waiting should never have asked for this sort of tribute.  Whether intended or not, the request makes it appear that access to city government is restricted to those who tithe.  There’s nothing new about that—the title “City That Works” has always ended in a silent “For Pay”—but Chicagoans might be excused for having hoped for something new post-Daley.

Many in the nonprofit sector are dismayed at having to compete with city government for the foundations’ largesse, and that’s a legitimate concern, though a belated one: the Daley administration never hesitated to ask private and foundation donors to subsidize city expenses with money that would otherwise have gone to independent community groups.  (Can you say “Millennium Park”?  “Olympic bid”?)  But the Nonprofiteer is more concerned about a new mayor’s implying, and establishing a precedent for the idea, that even being heard on the 5th floor requires big bucks.

Some wag once said that New York was about culture and Washington about power, but Chicago was all about money.  Plus ca change . . .

“L3C” spells “caveat emptor”

March 17, 2011

Here’s something strange: a concept thrown around routinely and casually in conversations among nonprofits and philanthropies is simultaneously the subject of fierce debate and sometime disapproval by the Internal Revenue Service, a committee of the American Bar Association, and other experts. What is going on?

The notion of Low Profit Limited Liability Corporations (L3Cs, for short) is that they’re a vehicle for doing well by doing good and therefore an improvement over the typical nonprofit structure. L3Cs are permitted to earn profits but proponents claim that their praiseworthy intentions—to end hunger or provide clean water or whatever—make those who lend to them eligible for the special tax benefits attached to program-related investments. In other words, this is a legal structure presented as a technique for gaining access to capital (always a struggle for nonprofits) by providing a tax benefit to lenders.

Of course, foundations already get a tax benefit for program-related investments in regular nonprofits, so what, exactly, is the appeal? In theory, foundations might be more interested in program-related investments that generate a reliable flow of capital (in the form of profit) than in program-related investments that generate nothing but additional nonprofit programs and services. Likewise in theory, regular venture capitalists outside of foundations will be more interested in making investments in profit-making entities than in pure nonprofits. This—the notion goes—will increase the amount of capital available to support general good-guy behavior.

However, a number of scholars and lawyers (Daniel Kleinberger of William Mitchell College of Law prominent among them) see the L3C as, at best, redundant and, at worst, an invitation to fraud. They point out that regular limited liability corporations can be organized for any purpose, including public-spirited and low-profit ones. They point out that the IRS has not yet issued (and does not seemed inclined to create) a rule awarding automatic program-related investment status to any investment in an L3C. So anyone who invests in an L3C on the basis that it provides a higher return than a regular nonprofit with the same tax benefits will find out to his/her sorrow that this is not the case.

What strikes the Nonprofiteer as peculiar, though, is that in the many discussions she’s heard and read about L3Cs, only one mention (specifically, Professor Kleinberger’s Nonprofit Quarterly article) has ever surfaced of this opposition from the bar and Federal regulators.  Not until her tax lawyer Stuart Levine asked about the [successful] efforts in Illinois to create L3Cs did she realize there was anything controversial about the phenomenon.  After bringing her up to speed Levine wisely said,

L3C’s don’t work unless there is a change in federal tax law.  In other words, L3C’s are a little like Oreo-Tycin-Myacin—the wonder drug for which there is no known disease.

L3C’s raise difficult issues of fiduciary duty and the inherent conflict between “charitable” purposes and “business” purposes.  At the least, these conflicts cannot be dealt with via a quick-fix state statute.

Doubtless the Nonprofiteer spaces out on frequent occasions and misses aspects of what’s said or done in the sector.  But she suspects there’s also a disconnect between what nonprofit executives and L3C promoters expect and describe and what lawyers and regulators understand.

So if you’re considering investment in an L3C, be the aware buyer of whom you’ve heard.


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