Three Easy Ways for Foundations to Support Democracy

Nonprofits must become equal, active partners in the philanthropic process.

Pablo Eisenberg is the most vociferous, most consistent, and most cogent critic of philanthropy we know.

Yet his decades-long calls for increased foundation payout still haven’t had the desired effect. In this article he takes a different tack: offering some reforms that speak to democracy in the United States, and that would be pretty easy for foundations to do.

The greatest weakness of philanthropy is the lack of critical analysis about it.

Nobody wants to say anything negative or bad about philanthropy! It is often assumed to be so good that it is beyond criticism, and grantees seldom dare to raise any concerns lest they lose their funding.

Happily, the consumer movement in philanthropy is picking up steam…but slowly. But until the day that movement forces a full-throated discussion and debate about philanthropy, neither foundations, nor individual donors, nor nonprofits will meet their enormous potential.

Foundations have had a notable track record in maintaining our civil society and its institutions. But they are not having the impact on our nonprofit sector and on our country that they are capable of exerting. The same can be said of wealthy individual donors.

In fact, philanthropy as a whole appears to have widened the gap between the have and have-not communities, and in parallel, widened the gap between the have and have-not nonprofit organizations.

The overwhelming amount of foundation money continues to go to the large established institutions of higher education, health, and arts and culture, while small nonprofits and grassroots organizations appear to have suffered most during the recession, especially those serving low-income, minority, and other marginalized communities.

Nor have foundations generally reached out to nonprofits — particularly small ones — in regions like the South, Southwest, and plains states that are seriously underserved by philanthropic institutions.

Individual wealthy donors show the same patterns. They give almost all of their money to universities, medical schools, arts programs, and museums and provide little or nothing to local and national anti-poverty, advocacy, and social service organizations.

Just look at the grants and contributions listed by The Chronicle of Philanthropy: every issue tells the same sad tale: 25, 50, or 100 million dollars going to colleges or favored arts institutions.

Can foundations be democratized?

As the most elite institutions in our nation, foundations are a throwback to the days of Louis XVI and Marie Antoinette. Their boards are composed of the wealthiest and most highly paid professionals in the country. While a growing, substantial number of trustees are women and people of color, they share the same elite class backgrounds.

There are only a very few trustees who are ministers, community activists, social workers, teachers, or union members…people who represent a cross section of American society. No wonder foundation giving is so tilted toward the establishment community.

In a related matter, some experts predict that we are likely to see the emergence of up to 100 mega-foundations like the Gates or Walton foundations, each with assets of 50 billion dollars or more. Do we want such foundations, run by two or three family members and their friends, to set public priorities in local and national communities?

If not, what should we do to have these monies — which donors gave to public purposes in exchange for the tax deduction — governed at least in part by public processes?

Some of us, including the National Committee for Responsive Philanthropy, have called on foundations to change many of the ways they do business, so that they can better serve their grantees. These include the following:

• Providing much more general support, which is the life blood of healthy nonprofits, especially in these tough financial times when they need all the flexibility they can get
• Investing in the long-term stability of nonprofits by making multi-year grants
• Devoting a greater percentage of their grants to advocacy and organizing activities
• Increasing foundation payout to at least 6%, and making that amount all in grants (currently the 5% “payout” requirement can include administrative costs in addition to grants)
• Simplifying the application process
• Treating grantees with respect and decency

Rather than dwelling on these well publicized suggestions for change — despite the fact that foundations are not acting on them — I would like to propose a few other areas where foundations could make a significant difference towards a democratic society:

1. Fund watchdogs.

In recent years, we have seen federal and state regulations flouted and enforcement efforts weakened as a result of the pressure of special interests. This has been the case in the environmental field; in the management of our natural resources, in consumer protection; in industries like mining; in the health field; in our financial world; in the Department of Defense; and in the activities of some large nonprofits.

And we have been unaware of or tolerated abuses and ethical lapses at every level of government, costing us billions of dollars as well as the damaging impact of poor policies and programs.

Our democratic system is founded on a system of checks and balances, nonprofits serving as the sector that tempers the power and excesses of both government and the corporate/business community. In practice there are too few nonprofits that serve this purpose and too little money available to finance such activities.

There are, of course, some excellent watchdog organizations that do great work despite limited budgets. Yet they are far too few. Here, then, is a fertile field for foundation involvement.

2. Fund community organizing and activism — bang for the buck.

Strong community-based groups that can mobilize large numbers of people are one of the few checks that citizens can exercise on the power and authority of large, established institutions, such as banks, government agencies, corporations, and, indeed, some large nonprofits.

In recent years, there has been a notable growth in community organizing across the country. Grassroots groups have established themselves as strong advocates for low- and moderate-income constituencies, minorities, and immigrants; as community development and housing entrepreneurs; as social service providers; and as public policy makers.

While foundation money to these groups has increased slightly during the past few years, the latter remain grossly underfunded.

As the National Committee for Responsive Philanthropy has demonstrated in its studies of the impact of organizing and advocacy in local communities, foundations receive far more bang for their buck in supporting activist organizations than they do in funding many, more traditional nonprofits.

3. Support accountability in the nonprofit sector.

Nonprofits are still riddled with excessive compensation, self-dealing, inappropriate expenditures, conflicts of interest, and poor governance, abuses that were first documented almost ten years ago by the print media, especially daily newspapers. This coverage led to useful Congressional hearings, some regulatory changes, and tougher scrutiny by the IRS.

Contrary to the optimistic view of some commentators within the nonprofit community, there are many rotten apples in the nonprofit barrel. The sooner we get rid of them, the better off the sector will be.

The IRS has had neither the resources nor the will to do a good job in overseeing and policing the sector. Self-reform, the preferred solution of any industry, has been a dismal failure. The demise of daily newspapers and the loss of investigative journalism means that there is likely to be little or no oversight of the sector. How will we increase the public accountability of nonprofits?

Clearly the one “do-able” reform would be to strengthen the IRS’s oversight and enforcement efforts, as well as strongly support the work of state attorneys general. Both lack the funds they require to do their jobs effectively. To date, both foundations and nonprofits have been reluctant to push the Congress to appropriate more funds for the tax exempt unit of the IRS, as well as money to state regulators.

This must change. Foundations should finance a campaign to pressure Congress to allocate the money necessary to assure nonprofit and foundation accountability.

Foundations try to avoid key questions

The foundations will try to avoid facing the fundamental questions about the role of philanthropy in society. Nonprofits cannot afford to stand by and allow this to happen. They must stop acting like beggars and become equal, active partners in the philanthropic process. If they do, I am confident that foundations will emerge as an even more relevant and influential force in our society.

Hopefully, we will be able to share the determination and optimism of British Admiral Nelson who, at the Battle of Trafalgar, looked at the enemy through his telescope with his blind eye and said, “I see victory in sight.”

You might also like:

• Treasurers of All-Volunteer Organizations: Eight Key Responsibilities
• An Easy-to-Use Accounting Procedures Manual Template
• A Guide for Private Foundations: Tax Exemption and 990-PF Filing Requirements
• Why is it Hard to Give My Money Away? A Donor’s Perspective
• Nonprofit Grant Proposal Budget Calculations: A Road Map

You made it to the end! Please share this article!

Let’s help other nonprofit leaders succeed! Consider sharing this article with your friends and colleagues via email or social media.

About the Author

Pablo Eisenberg

Pablo Eisenberg is currently a Senior Fellow at Georgetown University. His background includes 23 years as executive director of the Center for Community Change, founding the National Committee for Responsible Philanthropy, and stints in the U.S. Army, U.S. Information Agency, Office of Economic Opportunity, and the National Urban Coalition. He is a prolific writer and frequent conference headliner, and co-authored Foundation Trustee Fees: Use and Abuse (Georgetown Public Policy Institute 2003). He also served on the Judges Panel for the Just Awards co-sponsored by Nonprofit Online News and Blue Avocado.

This author does not have any more posts.