Start a Charitable Foundation

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?

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.