Tilting the balance of power towards the middle

Pablo Eisenberg

I must take issue with David Emerson’s response to Rick Cohen’s article on philanthropic watchdogs.

The experience of the American foundation sector speaks forcefully to the need for both government regulation and enforcement and the oversight of watchdog non-profit organizations. The Internal Revenue Service is responsible for monitoring the compliance of more than 90,000 foundations with the legislation and regulations that govern them. To date, the IRS has had neither the funds nor the will to do a decent job. Its approach to monitoring has been permissive and lacklustre, and its willingness to enforce the rules has been weak at best.

It was the print media, notably the large newspapers, rather than the government or the watchdog groups, that blew the whistle a few years ago and divulged the enormous extent of inappropriate expenditures, self-dealing, excessive compensation and waste that plagued the sector. It is the media that has served and is currently serving as the accountability mechanism for the foundation world.

Nevertheless, such practices continue. Foundations are the most elitist organizations we have; their boards are composed almost entirely of the wealthiest and most highly paid professionals in the country. They are not accountable to either marketplace or voters. They are, in short, largely unaccountable to anybody.

To say that foundations should be free of watchdogs in order to make their valuable contributions to society, as Mr Emerson states, is to downplay the power and influence they have, especially over their non-profit grantees, which are dependent on them for their sustenance, as well as the importance of assuring their accountability to the public which gives them their tax breaks.

There is no evidence that philanthropic trade associations, or coalitions of large established non-profits like Independent Sector in the US, are willing or able to enforce principles of conduct among their members or to keep them in check. In fact, they have historically defended their members, right or wrong.

Mr Emerson does recognize the need for more effective forums in which foundations could exchange views with non-profits and the public. But these would not be sufficient to serve as the canaries in the proverbial mines that warn of impending danger – and canaries are often ignored.  Only forceful pressure and tough oversight will bring the changes we need in philanthropy.

If foundations, and indeed non-profits, were serious about resolving some of their relationship problems and improving foundation performance, they could establish an independent philanthropic ombudsman organization, paid largely by the foundation community, that could settle disputes between non-profits and foundations, hold the latter more accountable, and generally serve as a fairly powerful watchdog organization. This might serve as a more effective early warning system than that which Mr Emerson has in mind.

In the meantime, we in the US need more and stronger watchdog organizations. The National Committee for Responsive Philanthropy has been doing an excellent job on an annual budget of about $1.4 million. With an annual budget of $5 million, the organization could become a major force for accountability and fairness in the foundation world. Even better, with a large endowment, it could begin to exert its influence without any anxiety about raising foundation money or the possibility of foundation retaliation.

While not eliminating the power differential, the balance of power could finally tilt more to the middle.

Pablo Eisenberg
Senior Fellow, Georgetown Public Policy Institute

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