Philanthropies taking new look at standards

By John Boudreau

In the past year, the world of philanthropic foundations has faced intense scrutiny from the media and Congress.

News stories across the nation have spotlighted instances of questionable spending practices and conflicts of interest. Congress considered a proposal that would have forbidden administrative costs from being counted as part of foundations' required annual payout of 5 percent of assets.

Now, a new report reflects increasing interest among foundation leaders themselves in tightening internal standards - something that was not being discussed until recently.

"It's possible to argue that things have changed pretty dramatically in the last year," said Phil Buchanan, executive director of the Center for Effective Philanthropy.

The Cambridge, Mass., organization recently published "Foundation Governance: The CEO Viewpoint." Nearly three-quarters of the 129 organizations surveyed said they are considering changes to their operations, while a third have already instituted new procedures.

Many changes considered

Foundation leaders are looking at changing committee structures or adding audit committees; requiring board review or chief executive and chief financial officer sign-offs of tax returns; and adopting conflict of interest policies.

A growing number of foundations want to be "out in front of this issue rather than be in a reactive mode," Buchanan said. They want to establish standards that go beyond minimum requirements, he said.

The report notes that 53 percent of family foundations and 74 percent of non-family foundations compensated at least some of their board members. The median pay was $22,000, which worked out to $324 a hour. Some of the foundations are reviewing compensation policies, the study said.

Board members who are paid tend to be much more engaged than those who are not, Buchanan said.

But there's no evidence "that paying board members results in more effective foundations," said Rick Cohen, executive director of the National Committee for Responsive Philanthropy.

The report doesn't address other key issues, such as increasing class and racial diversity on foundation boards, he said.

Discretionary grants addressed

Cohen said he is bothered by the propensity of foundations to allow board members to make "discretionary" grants, with little or no input from staff. The median value of such grants in the survey's sample was $43,000. (Two responses were excluded from this calculation because their board members' discretionary grant budgets - $10 million and $70 million - would have skewed the results.)

"Essentially, they are the personal interests of the trustees as opposed to the institutional interests of the foundation," Cohen said.

The report, he said, underscored the need for stronger foundation self-governance and "tougher standards" and enforcement by government.

More studies to come

The report is the first in a series that will address how foundations operate, said Alexa Culwell, chief executive officer of the Charles and Helen Schwab Foundation in San Mateo. She sits on the philanthropy center's board of directors.

The organization's mission is to provide data and tools to assess overall foundation performance. Future work will examine the effectiveness of foundation boards and staffing ratios. The center will continue studying the relationship between foundations and the organizations they support with grants - and even those they reject.

Very few studies, and little data, exist on the issue, Culwell said. In the past, most of the focus has been on how family members get along at board meetings.

"It will be groundbreaking," Culwell said.

 Copyright © 2004 San Jose Mercury News. Reprinted with Permission.