Shoring Up Foundation Ethics

New program aims to help grant makers stay accountable

Foundations must respond to the questionable activities of some grant makers by putting in place and enforcing stronger ethical standards, Dorothy S. Ridings, president of the Council on Foundations, told grant makers and others gathered at the organization’s annual convention here last month.

Ms. Ridings announced a new program designed to teach foundation professionals how to adopt ethical standards to govern their operations. The $2.9-million program also will attempt to make the council’s ethics guidelines more precise and to educate state and federal charity regulators about what foundations do. As part of the plan, the council will point out wrongdoers the government might want to investigate.

The theme of accountability was a constant at many of the sessions held at the meeting. Many of the conference’s 1,600 participants heard foundation officials of all types discuss leadership issues. Many speakers warned that grant makers’ inability to properly police the foundation world may lead to far-reaching state and federal legislation comparable to the Sarbanes-Oxley Act of 2002, a federal law that governs the financial practices of corporations.

“We need to find ways to self-regulate before regulation is imposed upon us,” Rushworth M. Kidder, a trustee at the Charles Stewart Mott Foundation, in Flint, Mich., and president of the Institute for Global Ethics, a research organization in Camden, Me., told an audience during a session. “Self-regulation is ethics; government regulation is law. Can we be good enough to self-regulate, so that the regulators look elsewhere?”

The Council on Foundations announced its accountability program during troubled times for grant makers. News reports on lavish spending, travel costs, and questionable loans by several grant makers have the foundation world on the defensive, Ms. Ridings noted.

Foundations are now faced with more skepticism than perhaps ever before, she added. “I hear some scoffing from critics when I say that the horrific scandals we see are not common practice,” she said. “There are indeed cheating foundations among us. The question is what do we do about that?”

The council’s program will strengthen the organization’s ethics standards for its members, Ms. Ridings said, partly in answer to scandals and partly to make up for a shortage of funds in the Internal Revenue Service’s division that monitors foundations and other nonprofit groups. The council said it would work closely with the Internal Revenue Service to identify foundations that may be involved in illegal behavior. It will also create a toolkit designed to help federal regulators home in on foundations that may operate outside the law.

The council’s plan also includes more help for new members in developing ethics policies, and a newly formed committee that will look into the organization’s standards and its enforcement of them.

A series of 12 meetings across the country will include foundation officials, trustees, philanthropy consultants, and regulators to discuss ethical issues.

Some of the council’s 2,000 member grant makers questioned whether the strengthened guidelines were overkill, while others applauded the program, Ms. Ridings said in an interview after she announced the new standards. Some blanched at the program’s title — “Building Strong Foundations: Doing It Right” — but Ms. Ridings said the name was appropriate. “Honestly, there are people out there who are doing it wrong. The title is shorthand. It fits,” she said.

“This gives us an opportunity,” Ms. Ridings said. “We’ve refocused the entire council to deal with this. We’ve got everybody’s attention now. Any time we can lift up the ethical side of philanthropy, we have to do it.”

Some in the philanthropy world expressed skepticism that the council could enforce tougher standards on ethics.

“Trade associations as a rule have had a hard time policing their members,” said Hodding L. Carter III, president of the John S. and James L. Knight Foundation, in Miami.

Mr. Carter added, however, that the program was a step forward for the council and its members. “What encourages me is that we’re finally moving beyond the repetitive rhetoric to where we need to be,” he said. “If this program forces each one of us to look in the mirror and say, ‘I’m not the fairest of them all,’ then it will have really done something.”

William White, president of Mott, said the foundation would probably offer financial support for the program — but only after getting answers to questions surrounding the enforcement of ethical standards and who the council’s newly formed ethics committee will report to. “There’s a bunch of us asking whether there’s enough teeth in this,” Mr. White said.

Interest in how foundations can be more effective is so high that an overflow crowd attended a session to introduce “Attitudes and Practices Concerning Effective Philanthropy,” a new study conducted by Francie Ostrower, senior research associate at the Center on Nonprofits and Philanthropy at the Urban Institute, a think tank in Washington.

The study, financed by the David and Lucile Packard Foundation, in Los Altos, Calif., and Grantmakers for Effective Organizations, in Washington, was based on a survey of nearly 1,200 foundations with professional staffs to find out how grant makers define effectiveness and how they measure it.

The findings show that many foundations don’t practice what they preach. For example, only one-third of foundations that say they see worth in formal evaluations do not actually perform them.

Of the foundations that said it was very important to solicit outside advice, only 26 percent said that getting ideas from others was not important when determining their own grant-making priorities. Community foundations were almost twice as likely to involve the public in decision-making processes than were private or corporate foundations.

Among grant makers that said it was important to respond to social needs pointed out to them by grant applicants, only 30 percent had sought the advice of grantees.

“Foundations need to look at their own standards and what their stated goals are,” said Ms. Ostrower. “They also need to look at how responsive they are to groups outside themselves and to explore whether this might improve their effectiveness.”

Other panel members lauded the study for its breadth and for making a point of noting the insular nature of foundations — including foundations that say they favor measuring the effectiveness of grant programs and involving the public in their decisions.

Effectiveness has become an issue at the same time accountability has, said Patricia Patrizi, chairwoman of the Evaluation Roundtable, in Wyncote, Pa., a group of foundation executives and consultants who look at ways to improve how grant makers operate. “Foundations are having to defend themselves,” she said. “We need to be more open and transparent. No one can explain what they do to the public. No wonder people think we’re a coven.”

The report’s executive summary can be obtained on the Urban Institute’s Web site, http://www.urban.org/media/index.htm.

One way foundations can inform the public is by training or hiring employees to get information to the news media, Amber Khan, executive director of the Communications Network, a group that represents foundation public-relations officials, said at a conference session here. Among the more than 60,000 grant-making institutions in the United States, only 350 have employees who devote the bulk of their work time to handling inquiries from journalists, she said.

But many groups have anxieties about dealing with news operations.

“We were kind of disheartened to find we have members who won’t return press calls,” Ms. Ridings, the council’s president, told conference participants. “There are terrible risks in keeping quiet.”

She encouraged member foundations to re-evaluate their policies for speaking to the press and announced that the council’s accountability program will include the development of a strategy for dealing with the news media. “We don’t want to appear as if we’re sitting on our thumbs,” Ms. Ridings said.

While many speakers chided journalists for what Ms. Ridings called “piling on” after news accounts of lavish spending on travel and other scandals became public, a state regulator lauded the press for breaking stories about foundations that engage in illegal or questionable practices. Since most state and federal regulators are short on money and employees, “It has been the press that has shouldered much of the responsibility for exposing wrongdoers,” said William Josephson, assistant attorney general of New York.

But Mr. Josephson’s view was in the minority.

Many who spoke about the press coverage of corrupt grant makers and nonprofit groups worried that the portrayal of foundations would taint the reputations of those who operate well within the law. Some said that news organizations have little understanding of how the nonprofit world operates.

“We’ve got to figure out how to tell our story, and that’s difficult because the journalists who cover philanthropy haven’t taken the time to learn philanthropy,” said Ralph Smith, vice president of the Annie E. Casey Foundation, in Baltimore, during the conference’s closing luncheon.

Lorie A. Slutsky, president of the New York Community Trust, typified the skepticism registered by many attendees concerning the press during the luncheon.

“My advice on dealing with the media is this,” Ms. Slutsky said. “Hold your ground. Insist on giving background and facts. And expect nothing.”

Several sessions focused on foundations’ support of advocacy groups and campaigns during an election year. Traditionally, many speakers said, grant makers have shied away from giving money to advocacy groups for fear that their tax status would be questioned. The same goes for many organizations that “opt not to participate at all, both from fear and for lack of information,” said Nan Aron, president of the Alliance for Justice, an advocacy group in Washington.

Foundations are allowed to make grants to organizations that deal with issues such as voter registration and participation, but organizations may not support political candidates.

Grant makers and organizations were encouraged to hire lawyers to make sure that their practices can withstand scrutiny. Lawyers can also help explain grants and their legality to shaky board members.

Lawyers who aren’t themselves jittery are especially valuable, said one speaker.

“It’s always good to have lawyers who will help you do what you want to do, rather than lawyers who will tell you that whatever you want to do is impossible,” advised Gara LaMarche, vice president of the Open Society Institute, in New York.

Mr. LaMarche added that instead of shrinking from supporting advocacy for social causes, foundations should engage more often in it — both to serve those causes and to garner some public esteem. “If the public only hears from us when it’s about a matter that affects us, then we won’t have much credibility,” said Mr. LaMarche.