Charitable Foundation Rules

An interesting article from Reuters caught my eye yesterday. It was about a proposal in New York to cut state tax deductions for charitable giving for the weathiest citizens. As the article reports, "New York lawmakers want to cut the tax break on charitable giving for about 3,500 people earning more than $10 million a year to 25 percent from 50 percent in a bid to raise $100 million in extra money for the state."

All the usual suspects are quoted in response to this article: foundation heads and nonprofit execs decrying the thought; Paul Schervish from the Center of Wealth and Philanthropy at Boston College saying it won't really be a big deal. The same arguments that have been raging on the national scene were all there. 

The big difference? This is about a specific state. 

As we know, ideas that are not completely salable to the national populous often become tested at the state level. But when it starts to happen in our field, which has, let's face it, lived in relative anonymity for decades, it can be a little jarring. And exhausting to contemplate. 

As states begin to focus more on foundation rules and foundation legislation, it means that foundations in those states must become more adept at educating lawmakers about foundations and sharing philanthropy information no just about their states as a whole, but by state representatives' districts. Gone are the days of simply adding a passive "amen" to the Council on Foundations' work in Washington. We've got to get busy here at home. 

I'm happy to know that the Southeastern Council of Foundations is leading the charge, supporting statewide grantmaker networks that are focused on policy, and providing several state-focused policy sessions at the upcoming 2010 Annual Meeting. Hopefully, this will help more foundations in our region understand the challenges ahead and how to tackle them most effectively. 

Which of the states in the Southeastern Council of Foundations' region will be the first to introduce legislation similar to New York's?

My money's on Florida. What about yours?

There's an interesting debate going on over at the Tactical Philanthropy blog. (Be sure to read the comments, not just the post.) It's about the Chronicle of Philanthropy op-ed published recently by Phil Buchanan and Ellie Buteau of the Center for Effective Philanthropy, which questions the value of the ever growing field of "purveyors of new philanthropic formulas for making a difference."  

Sean Stannard-Stockton replies with the argument that no "Tactical Philanthropy," "Catalytic Philanthropy," or other "Fill-in-the-blank philanthropy" approach has claimed to be right for every foundation or philanthropist. And the conversation goes on, including a response from Mark Kramer, who coined the term "Catalytic Philanthropy" and who will be speaking at the SECF Annual Meeting in November. 

The main lesson in all this for me, at least, is that there are a lot more people playing in the philanthropy sandbox than there were even a short decade ago. More people means we'll get some great new ideas and a lot more just plain noise. While the discussion referenced above is focused more on effective grantmaking, we've already seen new voices pipe in on discussions of foundation rules, foundation regulations and general philanthropy policy. We're beginning to see new and different speakers and approaches to philanthropy conferences. Come to think of it, our sandbox is beginning to feel a might crowded.

But that's okay, maybe we all need to engage in a little more "Sandbox Philanthropy" to keep our minds open. (Sorry, I couldn't resist filling in that blank.)

Ron Hagan is a featured speaker at the upcoming SECF Conference on Investing for Foundations, April 22-23 in Atlanta. Click here to learn more or to register.

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.

In a recent column in Business Lexington, Anne Nash, a philanthropic advisor in Lexington, Kentucky, offered a fairly comprehensive summary of the ways in which the field of grantmaking is beginning to shift. In short, the lines between traditional grantmaking and business models seem to be getting more and more blurred. Perhaps one day, it will be difficult to distinguish between a grantmaking foundation and business empire.

Not that I completely disagree; there are plenty of arguments out there for adopting a more rigorous and results-driven approach to investing one's social capital. And no doubt new charitable foundations rules and regulations, along with ongoing foundation legislation, will evolve in response to these new trends. 

While it's great that a growing number of corporate and business leaders and thinkers are eager to make their marks in the philanthropic sandbox, it's also true that no one understands the real challenges of foundation grantmaking like those who have been toiling here for decades. That's why it's so critical that foundation executives and trustees make their voices heard among state and national policy and law-making bodies. And one of the best places to do that is at Foundations on the Hill, March 16 and 17th.

It's still not too late to sign up. The more of us who visit the Hill, the louder our voice and the stronger our influence as our field grows and changes. Get the details on the SECF Foundations on the Hill webpage.

To add your name to the list, contact Helen Ishii, Director of Member and Government Affairs, Southeastern Council of Foundations, (404) 524-0911 or helen@secf.org. 

See you in DC!

 I must confess I've derived some chuckles and a lot of incredulous head-shaking as I read news lately about the sole trustee of the New York-based Judith Rothschild Foundation who disappeared for several months and left 17 grantees without their promised grant checks, which totaled about $100,000. 

You can get the details — which read almost like fiction — from articles in the New York Times or the Wall Street Journal. But long story short, the foundation was created by the late Judith Rosthchild, a New York artist, to help share the story of her own work and foster new artists. She named her friend, Harvey S. Shipley Miller, as the sole trustee. 

That would be mistake number one, wouldn't you agree? Aside from the ethical considerations of having a single trustee, we often talk hypothetically about what would happen if a key leader were "hit by a bus." According to Mr. Miller, who recently resurfaced, this wasn't far from the truth. He claims he was badly injured in a fall at his home months ago and has been unable to communicate all this time.  If we take him at his word, then that's all the more reason to have a plan in place for communication for any grantmaking foundation, no matter what the size or scope. 

Sounds like Mr. Miller would benefit from SECF's upcoming Essential Skills and Strategies for Grantmakers workshop. If he were to attend, he'd learn some of the basic ins and outs of foundation rules and regulations from seasoned veterans in the field — including key points on ethics and communications. He'd also get his hands on some valuable philanthropy resources that would definitely inform his grantmaking. 

He can't attend, but you certainly can! The two-day workshop takes place in Atlanta March 3-4. Click here to learn more, view the full syllabus and register.

With as fast as the world of philanthropy is changing, it's sometimes hard to keep up. Private foundation legislation about payouts morphs into new rules for community foundations about funding advocacy groups. Corporate philanthropy's impact on brands runs together in my head with arguments about perpetuity and why people set up a foundation in the first place.

For years, the Southeastern Council of Foundations has been a haven for all manner of philanthropic conversations to take place, and now, I'm proud to see this organization taking the conversation one step farther. In this new blog, you'll find posts about a variety of topics from a number of authors about foundation rules, philanthropic policy, key issues for foundation trustees, worthy stories of grantmaking from around the region, news, useful ideas, and more. 

But this blog is only a means to get the conversation started, so read often, share your thoughts frequently, and help us all raise the voice and vision of philanthropy further into our collective consciousness. 

There's so much to talk about!