Report: Engaged Foundation Boards Are Most Effective

Chief executives of large U.S. foundations believe that the most effective governing boards are those whose members do not limit themselves to overseeing investments and approving grants but are also highly engaged in developing their institutions’ strategies and evaluating the social impact of their grant making, says a new report.

The foundation executives also believe that boards made up of several members of the same family tend to be less effective than boards with more diverse memberships, according to the report, published by the Center for Effective Philanthropy, in Cambridge, Mass.

The report, based on responses from 128 chief executive officers of some of the country’s biggest private and community foundations, is part of a larger effort to improve the effectiveness of foundation boards. The interviews were done in the fall of 2003.

The chief executives rated as most effective those boards that spent more time on foundation matters, including evaluating their own performance and that of their top executives, as opposed to boards that took more of a hands-off approach to their service.

“Family boards tend to rely more on fidelity to donor intent and the satisfaction of family members as the primary measures of their performance,” the report says, “rather than engaging in key activities that CEOs appear to associate with greater effectiveness, such as foundation performance assessment.”

Family foundations also appear less likely to have taken steps to improve accountability. Only 48 percent of family foundations had an audit committee, for example, compared with 70 percent of independent private foundations and 72 percent of community funds.

Similarly, 42 percent of board members at family foundations had discretionary funds from which they could make grants with little staff involvement, compared with 31 percent of those at independent foundations and 16 percent of those at community foundations.

Other findings:

• Nearly three-quarters of the foundations surveyed have held board-level discussions of corporate-governance changes, including talks of how new federal requirements for publicly traded companies (the Sarbanes-Oxley Act) might be applied to foundation operations.
• One-third of the foundations have instituted changes as a result, such as adding an audit committee, requiring top executives to sign off on informational tax returns, or adopting new policies on conflict of interest.
• About half of the foundations compensate some or all of their board members. The median annual compensation of board members is $22,000.

The center’s report concludes that the challenge for grant makers is “not simply to institute new policies on conflict of interest, or to reassign committee responsibilities, but rather more fundamentally to reexamine the board’s role and engagement.”

The report, “Foundation Governance: The CEO Viewpoint,” may be downloaded free from the Center for Effective Philanthropy’s Web site, http://www.effectivephilanthropy.org. Hard copies can be obtained for $10 each by contacting Alyse d’Amico at (617) 492-0800, ext. 206, or alysed@effectivephilanthropy.org.