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November 2004 Charity in the Spotlight
As baby boomers get closer to inheriting vast sums of money and philanthropic organizations face more scrutiny, foundations must strike a delicate balance in fulfilling their missions.by Sarah Robertson Some of the biggest names in the foundation world spent their lunch hour with Business School audiences this spring discussing everything from scandals over executive compensation to grant-making techniques. The sessions were informal, interactive, and often packed with observers looking for clues to how managers stay atop this field. When Bill Gates Sr., co-chair of the Bill and Melinda Gates Foundation, took the stage in Bishop Auditorium, the audience poured into overflow rooms. The speakers collectively manage billions of dollars and make decisions daily that can bring attention to unrecognized social problems or expand society’s capacity to tackle existing concerns. Sponsored by the Business School’s Center for Social Innovation and the University’s Haas Center for Public Service, the Philanthropy Discussion Series featured the theme of a foundation’s responsibility to the public. The managers who spoke acknowledged tensions between their responsibilities to the communities they serve and donors’ personal interests. One suggested congressional intervention, while others urged more management attention on public accountability. Besides Gates, the speakers were Susan Berresford, president of the Ford Foundation; Peter Hero, president of the Community Foundation Silicon Valley; Kathleen McCarthy, director of the Center for the Study of Philanthropy at the City University of New York; Jim Canales, president of the James Irvine Foundation; and Sally Osberg, president and CEO of the Skoll Foundation. The foundation community is at a critical juncture as the field grows rapidly and faces more public attention, they said. Statistics from the nonprofit Foundation Center, which tracks the industry, indicate U.S.-based foundations increased from 56,582 in 2000 to 71,000 in 2004. With baby boomers set to inherit $40 trillion to $130 trillion in the next 40 to 50 years, the number of foundations will only swell. Public and media scrutiny of foundations has increased, driven by both corporate and nonprofit-sector scandals over executive pay and other expenses or operational practices. Observers are asking more questions about what tax-exempt foundations do with their money, and some question whether they should remain largely unregulated. Because much of foundation money would otherwise end up in government coffers, some critics say, foundations should not make grants to causes that might seem frivolous or extreme to the general public. These criticisms weren’t new to the speakers, who called for their sector to take action quickly to gain public and government trust. Jim Canales, president of the Irvine Foundation, knows firsthand what it’s like to face critical publicity. When he took the helm of the $1.4 billion organization in 2003, the past president had resigned and the San Jose Mercury News had just published a story examining the foundation’s spending on office space and the former president’s compensation and retirement package. Addressing the scrutiny proactively, the foundation’s leaders did some strategic thinking, called in counsel to analyze the claims, and then publicly acknowledged some misdeeds while defending other practices on its website. In the future, Canales said, he plans to be “transparent to a fault. We need to communicate more effectively and strategically the results of the investments we are making.” Susan Berresford, president of the Ford Foundation, advocated more formal regulation of foundations. “Compliance issues should be addressed with legal and regulatory mandates and codifications of professional standards of administrative and operational practice,” she said. “This is something our field can help develop. If we don’t, it will be developed for us and done badly.” She appealed to groups like the Council for Foundations, the Philanthropic Roundtable, the Association of Small Foundations, and the Center for Family Philanthropy to band together and collect reliable data about foundations’ administrative costs and other finances. Creating an accountability and policing system will take money and manpower, however, and she urged foundations to press Congress to designate more money—specifically an excise tax paid by foundations—for monitoring and law enforcement. Despite their large challenges, the managers who spoke were, for the most part, optimistic about the future. As Bill Gates Sr. argued, foundations can use their money to take risks in research and cutting-edge social programs that the government can’t afford. And, he said, their grants help promote and advance such a wide variety of causes that foundation giving most likely mirrors how taxpayers and the government would spend like amounts of money. The implied social policy, Gates said, is that “it’s as good to have private money going to private charitable purposes as it is to have money coming from the government for governmental purposes.” Related LinksPeter Hero Kathleen McCarthy Susan Berresford Jim Canales Bill Gates Sr. Sally Osberg |
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Insights from PhilanthropistsBesides focusing on issues of responsibility, the 2003-04 Philanthropy Discussion Series touched on innovative ways of thinking about philanthropy and effective grant-making initiatives. Some of the insights: Grants aren’t the only way to advance a cause. The Skoll Foundation says it believes social entrepreneurs are capable of making effective, systematic change, but simply funding them around the world isn’t enough. In an effort to connect these individuals and create a dynamic community, the foundation created Social Edge (www.socialedge.com), an online community that fosters debate, networking, and learning opportunities for social entrepreneurs, activists, and nonprofit professionals. To celebrate social entrepreneurs and educate the public about their work, the foundation also helped fund a documentary, The New Heroes, which profiles social entrepreneurs around the world. Foundations can use data to help focus their missions. The mission of the James Irvine Foundation is to “promote the general welfare of the people of California.” Still, the foundation’s understanding of exactly who Californians are and will be in the next 20 years wasn’t clear until it gathered and analyzed a significant amount of demographic data. The foundation discovered key information about where population centers are growing—the Inland Empire’s Riverside and San Bernardino areas will account for 20 percent of the state’s population in 20 years—and where Californians come from—26 out of 100 were born outside the United States. Armed with this new data, Irvine plans to focus effectively on what areas of the state it wants to fund (the Central Valley and Inland Empire) and what populations to target (youth ages 14 to 24). Community foundations aren’t just local. The Community Foundation Silicon Valley now makes about 5 percent of its grants outside the United States. Just a few years ago it sent no contributions abroad. Driving this trend are the residents of Silicon Valley who want to give back to their native countries. According to a recent CFSV study, there are 200,000 Silicon Valley residents with family ties to India and with about $30 billion in combined net worth. So when an earthquake struck India’s Gujarat region, CFSV sent about $6 million to that area. The foundation also is connecting a local group called Czech Tech with community foundations in the Czech Republic. Foundations may face more competition for wealth. Many people believe that the foundation sector is on the cusp of a golden age. After all, baby boomers will soon inherit a tremendous amount of wealth and will be able to seriously start to give away their money. But with the mounting federal deficit and possible problems for the U.S. Social Security system, Kathleen McCarthy of the Center for the Study of Philanthropy at the City University of New York says that may not be the case. Boomers may be forced to use their wealth to pay their own living expenses and medical bills, she says. The deficit also could push Congress to increase foundation taxes or impose grant requirements to help pay for federal budget shortfalls and social programs that would otherwise be cut.
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