Proposed Legislation Worries Many Who Attended Meeting of Grant Makers

Clouds of anxiety hung over the Council on Foundations’ 54th annual conference here last month, as

grant makers — already reeling from steep investment losses — worried about the possibility of new federal legislation that would force them to give more money to charities.

Also shadowing the conference were two other recent developments: allegations of misconduct at the James Irvine Foundation, in San Francisco, and proposed legislation in New York intended to force foundation officers to adhere to higher levels of fiscal accountability.

It was not until a week after the conference ended that U.S. Representatives Roy Blunt, a Missouri Republican, and Harold Ford Jr., a Tennessee Democrat, proposed changing federal requirements so that most foundations would have to distribute more of their assets to charity annually.

But rumors of such a proposal were already swirling when the 1,600 grant makers arrived here for the meeting, and those rumors helped set the tenor of the gathering.

“Some alarming legislative changes are in the wind, based on what publicly is said to be an effort to get more charitable dollars out the door,” Dorothy S. Ridings, the council’s president, told grant makers. “An often unspoken companion reason is the belief that too many foundations are paying excessive salaries and fees and are otherwise lacking in financial stewardship.”

Negative News Reports

A backdrop to Ms. Ridings’s remarks was a recent report in the San Jose, Calif., Mercury News that the James Irvine Foundation had paid its former top executive, Dennis Collins, $717,000 in salary and deferred compensation in 2000 while also cutting its staff, reducing its grant making, and seeing its assets shrink by $400-million because of investment losses.

“We may not like the stories that are attracting the interest of the government or the media, but they serve as fair warning,” Ms. Ridings told the grant makers at the meeting. “Our field is under a new level of scrutiny and it is up to us to question our practices and to be distinguished ambassadors to the nonprofits whose very existence depends on grant makers’ relationship with them.”

Emmett D. Carson, president of the Minneapolis Foundation, echoed Ms. Ridings’s views, telling trustees of the council that well-publicized scandals in the corporate and nonprofit worlds are causing boards to receive more scrutiny than they have in decades. But Mr. Carson said he did not think that increased scrutiny was necessarily bad.

“Philanthropy’s fear of any added government oversight or regulation seems somewhat counterproductive,” Mr. Carson said. “We should be open to the possibility that, in some cases, reasonable government oversight could be beneficial and might help to clarify otherwise gray areas of accountability and minimally acceptable best practices.”

After accounting scandals at Enron and Arthur Andersen, Congress approved legislation requiring top executives to certify the accuracy of their companies’ financial statements and annual reports, Mr. Carson noted. In New York, Attorney General Eliot Spitzer has recommended similar legislation directed at nonprofit organizations, proposing that officers of nonprofit groups certify the accuracy of their organizations’ financial statements and their annual reports.

“We should expect and prepare for other states to take similar actions,” Mr. Carson told the council’s board members.

Foundations as Critics

Mr. Carson suggested that the council itself must do a better job of monitoring the actions of foundations. “It is not enough to have standards of behavior if we are unwilling to criticize or sanction members and nonmembers alike who abuse those standards,” he said. “Certainly, it is never easy for a membership organization to criticize its members, and an appropriate balance must be struck between being an aggressive watchdog and a passive lapdog.”

Mr. Carson made several recommendations on how foundations could improve their performance and accountability. Saying that foundation board positions are “no longer ceremonial,” he said trustees must be able to ensure that endowments are well managed, the ratio of operating expenses to grants is reasonable, and conflict-of-interest policies are in place. “Our field,” he added, “needs better tools and comparative data to help us meet these minimum standards.”

Mr. Carson, an authority on black philanthropy, also said foundation trustees should help to ensure that more members of minority groups become involved in running their organizations. He cited a council survey showing that 90 percent of the members of foundation boards and 79 percent of foundation staff members were white.

“Such statistics might suggest to policy makers, the media, and the broader public that foundations may not equally serve all segments of the community and that there may be bias in our grant-making practices,” Mr. Carson said.