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Center for Social Innovation

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Foundations Must Play a Role in Policing Themselves

April 2004

STANFORD GRADUATE SCHOOL OF BUSINESS—Susan Berresford, the president of the Ford Foundation, urged foundations to make their industry accountable, warning that if the nonprofit community itself doesn't address the question of legal and professional standards, others will.

Speaking April 19 as part of the Philanthropy Discussion Series, she said the foundation world is at a crossroads. Over the past year, a shadow has been cast as foundations have been scrutinized by the media focused on the misdeeds and financial abuses of a few organizations. Creating accountability, therefore, should be a top priority as part of a foundation's responsibility to the public. "While government has the prime responsibility, the foundation community has a very important role to play," said Berresford. "We have a clear problem of public accountability right now but we have routes ahead that can help us."

As a start, the foundation community needs stronger law enforcement and more money to support those efforts. Foundations pay a federal excise tax each year that originally was earmarked to support the monitoring of foundations. Today, she said, it goes into the general federal tax pot. She urged the foundation community to "forcefully argue" that the excise tax be used for its original purpose.

The community also should develop standards by which foundations can be measured. Not all 60,000 U. S. foundations can be held by the same standard—a major organization with 13 offices has different administrative costs than a small family foundation, for example—so the standards should be flexible, said Berresford. She called for groups like the Council for Foundations, the Philanthropic Roundtable, the Association of Small Foundations and the Center for Family Philanthropy to band together, instead of working independently as they do now. They should partner to collect reliable data about foundations' finances, administrative costs and operations.

"Compliance issues should be addressed with legal and regulatory mandates and codifications of professional standards of administrative and operational practice," said Berresford. "This is something our field can help develop. If we don't, it will be developed for us and done badly."

A foundation's responsibility to the public also includes effective grant-making. When evaluating investments, foundations have a tendency to want to see programmatic results "the sooner the better." But Berresford warned against putting too much emphasis on quick results. Some of the best philanthropic giving is committed, consistent and continues over a long period of time, she said.

A foundation's effectiveness can also increase if older foundations "consolidate and present their lessons learned." The Ford Foundation has invested heavily in trying to share its experience. Four months ago, it started "GrantCraft," a free website with teaching cases and lessons on issues like working with start-ups and "saying yes, saying no." Since its launch, the site has had 40,000 visitors and 30,000 copies of the philanthropy guide have been downloaded.

The education shouldn't stop there. Making sure the public is informed about a foundation's role in a democratic society is also critical. In the United States the flourishing non-profit sector is "essential to our lives but few Americans grasp the concept of this third sector," said Berresford. "Even fewer understand how basic freedoms inherent in the third sector ultimately rest in part on philanthropic dollars."

While most Americans think positively about foundations, few can name one or identify a successful project a foundation has funded. These attitudes show that foundations need to do more educational outreach. The public should be aware that foundations promote a strong diversity of perspective, help marginalized groups gain success, and show that not everything has to be driven by political or market motives to be useful.

Initiatives that foundations fund may not be popular with everyone but discord itself can be a positive. "Philanthropy reinforces democratic principles but doing so can generate controversy," said Berresford. "Not everyone wants to hear the underdog's voice. Some are made uncomfortable by social change because they lose something of value. Foundations get criticized for doing some of this work. But our country' history shows that democracy benefits when new ideas and energy rise to the surface and find their place, even when that process involves conflict and criticism. Controversies are part of the landscape traveled by any institution with public obligation."

About the Philanthropy Discussion Series
The Philanthropy Discussion Series, sponsored by the Business School's Center for Social Innovation and Stanford University's Haas Center for Public Service, brings in some of the leading thinkers and practitioners in foundation philanthropy. Speakers address foundations' accountability, effectiveness, community responsiveness, and civic mission.

Upcoming Speakers:

May 4, 2004
Tom Tierney
Bridgespan Chairman and former Worldwide Managing Director, Bain & Company
Noon to 1 pm, Stanford Graduate School of Business, S170

May 13, 2004
Kathleen McCarthy
Director, Center for the Study of Philanthropy, CUNY
Noon to 1 pm, Stanford Graduate School of Business, S180

May 18, 2004
Peter Hero
President, Community Foundation Silicon Valley
Noon to 1 pm, Stanford Graduate School of Business, S170

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Foundations Must Play a Role in Policing Themselves

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