Charitable Foundation Information

Standards are something that most of us accept as part of our everyday life.  They have become such an integral part of our existence that the average person gives little or no thought to everyday products and services, and how they work.  Standards make modern conveniences possible: light bulbs fit into lamps, electronic files are transferred over the Internet, trains move between states because the tracks are the same gauge, and the list goes on.

The American National Standards Institute defines a standard as "a recognized unit of comparison by which the correctness of others can be determined."  Simply put, standards make life safer and help organizations operate more efficiently.

In spite of the vital role that trustees of foundations play in protecting the economic health of charitable institutions, uniform standards that define how they should perform their fiduciary duty do not exist.  The investment community compounds the risk for donors caused by the lack of a fiduciary standard.  For example, procedures vary greatly from one investment firm to another for selecting and monitoring money managers and the securities in which they invest.  The reason; firms that provide investment advice, manage mutual funds, and offer alternative investing programs have yet to adopt common rules.

Imagine if airplane manufacturers had no standards to guide the way wings are made.  Many airplanes just would not fly and there would be no commercial aviation industry.  Yet tens of thousands of transactions, affecting the accounts of donors and beneficiaries, are handled every day without a recognized standard for managing the investment decision-making process at foundations.

No better example of the catastrophic effect of the lack of standards exists than events of September 11, 2001.  In the communications world, interoperability is very important.  It is a word that describes how electronics equipment exchanges information directly and satisfactorily between devices and their users.  On September 11th, many emergency response agencies were unable to communicate due to the use of different communications equipment and frequencies.  The Department of Defense reported later that hundreds of people died on September 11th due to the lack of a needed communication standard.  Because of the unfortunate lessons learned at the Pentagon and the World Trade Center, local, state, and federal emergency agencies are all looking for universally accepted interoperability standards and equipment to enable radio and telephone communication between responding units.  Sadly, their efforts are too late to save victims of the 9/11 attacks.

While it is unlikely that people will die from the lack of fiduciary standards, the economic threat is wreaking havoc.  Massive fraud cases like the Madoff and Stanford Group’s Ponzi schemes gained their start because fiduciary standards were missing.  Although more subtle, a just as serious danger lurks.  The difficulty fiduciaries have in benchmarking investment firms’ practices, due to the absence of standards, sets up the potential for the depletion of asset values from undisclosed fees and conflicts of interest.

The lack of standards to guide the conduct of fiduciaries is primarily responsible for the uncertainty felt by trustees and members of investment committees.  Confusion and chaos in committee rooms are symptoms of a similar situation that existed on a wide scale right after World War II.  The realignment of nations quickly showed that a less regional and more global economy was forming.  In order to ensure that products and services could move across borders, standardized ways of making them were needed to guarantee their quality.  Just as countries needed standards to make global commerce safe and profitable, so, too, foundations need uniform process standards for its fiduciaries and their investment providers.

Ronald E. Hagan

Chairman of the Board of Directors - The Investment Fiduciary Leadership Council

www.iflcouncil.org

Ron Hagan has served as chairman of the non-profit Investment Fiduciary Leadership Council since 2008.  He is also President and CEO of Roland|Criss which is a Professional Fiduciary Organization serving foundations and pension plans in a named fiduciary capacity.  Ron has a lengthy career in helping trustees develop their oversight skills in the four disciplines for fiduciaries; governance, controls and practices, administration, and investments.  Prior to joining the Roland|Criss team he was a Senior Vice President and member of the Executive Committee of the First National Bank of Commerce where he served as a fiduciary on its Asset Liability Management Committee.  Earlier in his career Ron was a Principal with Booz, Allen & Hamilton.  His duties at Booz, Allen included advising executives of Fortune 500 companies on prudent fiduciary processes.

We've all just returned from Foundations on the Hill, and today I offer my blog space to Helen Ishii, our director of member and government affairs, who led SECF's charge of 50 people up the steps of Capitol Hill and lived to tell about it. The results were the best we've seen from any Foundations on the Hill event to date. My hat's off to Helen for pulling us all together. Here's her reflection from the experience:

I'm sitting across from a couple of very bright Congressional staffers, making idle chit chat and finding connections with less than six degrees of separation, as we await Rep. Boozman (D-AR-3rd) to return from a vote to meet with us. I appreciate that the Congressman finds our visit important enough to return to the office, especially as it's now 5:00 p.m.  I also appreciate that in every office we've visited today, someone in our group has found a personal connection to at least one staffer and also often to the Member of Congress. These personal connections have proven important over the years as they are often what makes a staffer or Member comfortable calling on us as a resource.

This is my 6th trek to DC for Foundations on the Hill. This physically exhausting trip has become a valued annual event for our members, 50 of whom made it this year. These hearty souls put many miles on their soles as they walk and walk and walk the halls on the Hill. This year they have visited 94 Members of Congress from the 11 states in the Southeastern Council of Foundations' (SECF) region. Every year we return to educate the ever revolving supply of extremely young, extremely bright and extremely inexperienced staffers about the work of foundations, as well as to inform Members of Congress on the issues impacting our sector.

This year I joined our teams from Arkansas and South Carolina as they made their visits. Senator Blanche Lincoln (D-AR) immediately "got" the importance of basing the TANF (Temporary Aid to Needy Families) funding formula upon need and the benefit that would accrue to all Southern states. She also remarked about how helpful it was to have the same message delivered to her Southern colleagues by other SECF members.

Everyone saw how a cap on charitable deductions could be harmful to the sector.  As to be expected, the chair of the House Budget Committee, Rep. John Spratt (D-SC-5th) asked about the "scoring" of H.R. 4090, which will simplify the private foundation excise tax to a flat rate. We were able to answer his question, thanks to the briefings we'd received from COF the day before.  Soon, blessedly soon, I'll be walking to the METRO to catch a flight home, where I'll finally be able to soak my aching feet and begin my thank you notes to continue the relationships begun today.

- Helen Ishii, SECF Director of Member and Government Relations

An article in the January 10 Arkansas Democrat-Gazette, "Transition from Sparks Hospital to Charitable Entity a Long Process," is noteworthy in two respects: it is a great example of a local reporter, Laurie Whalen, reaching out for a larger perspective on philanthropy, setting up a foundation and foundation regulations; and it underscores the importance of having foundation officials who are accessible to the media, willing and capable of explaining philanthropy policy in terms that the average reader can digest and comprehend.

In this instance, Heather Larkin, president and CEO of the Arkansas Community Foundation in Little Rock, offered a very helpful explanation of health conversion foundations, while articulating that transparency and accountability must be hallmarks of all foundations. Kudos to Whalen and Larkin for helping Arkansas citizens to understand the challenges and nuances involved in the creation of the Fort Smith Regional Healthcare Foundation out of the sale of the non-profit Sparks Regional Medical Center to a for-profit health care provider and simultaneously increasing public awareness of the extraordinary benefits that foundations offer their communities.