Have Nonprofit Groups Lost Their Integrity?

Integrity, transparency, and serving the public interest are the qualities that sustain Americans’ confidence in the nonprofit world.

In recent years, however, confidence in charities has declined. One reason is that too many charitable organizations have taken positions on important public policies that have been marked more by narrow interests, self-serving stances, cowardice, and greed than by a commitment to either high-minded values or what is best for the nonprofit world and the country.

Just in the past few months we have witnessed some shocking examples of nonprofit organizations ignoring the greater good:

• Independent Sector, a coalition of national charities and foundations, spent the past few months lobbying Congress and the president to include a provision in the just-passed corporate tax bill to permit taxpayers who don’t itemize on their tax returns to claim write-offs for their charitable gifts. The American Jobs Creation Act will grant corporations about $143-billion in unnecessary tax breaks at a time when the federal budget deficit is soaring and federal programs lack the money they need to carry out important social goals. Nonprofit groups shouldn’t be in a position of supporting any legislation that could harm people who depend on government aid, even when such bills contain provisions that would help charity fund raising.

  Not only is Independent Sector’s position morally indefensible, it is also a waste of energy: The nonitemizer provision is not the best way to spur charitable giving and would cost several billion dollars in lost federal revenue. Fortunately, Congress had the good sense to get rid of the charitable write-off in the final version of the legislation.

• Other charities were lobbying against the corporate tax bill, but their reasons had nothing to do with altruism. The tax measure contains a provision that will greatly limit the write-offs that taxpayers can claim when they give cars to charities. Lawmakers developed the measure because too many donors were placing overly high value on their donated cars, a pattern documented by a recent study by the Government Accountability Office. A coalition of more than 200 national groups — including Volunteers of America, the American Cancer Society, and Goodwill Services International — opposed the provision, arguing that it would be a huge disincentive to people considering donating their old cars to charities. For these organizations, all of whom benefit from car donations, cheating taxpayers apparently was a reasonable price for the country to pay as long as the car-donation programs produced income for their charitable activities.
• The California Association of Nonprofits has devoted months to lobbying against legislation signed into law this fall by the governor to ensure the financial accountability of nonprofit groups and to prevent fund-raising abuses by commercial fund raisers. The association argued that the measure would place unfair bureaucratic demands on nonprofit groups, especially small ones. A spokesman for the association stated that the requirement of an annual financial audit for groups with a budget of $2-million or more would be too burdensome a responsibility. Organizations of that size have plenty of resources, and financial accountability should be a chief responsibility. While stricter regulations may prove a small inconvenience, they are the trade-off for tax exemption and the public expectation of transparency and financial integrity.

Other examples of self-interest trumping the public interest abound.

In August, at a meeting sponsored by the Senate Finance Committee — which is considering tightening the regulations of nonprofit groups in the wake of numerous nonprofit scandals — both the National Council of Nonprofit Associations and Independent Sector said they didn’t believe it would be wise to impose stricter rules on nonprofit board members to prevent them from “self-dealing” — or getting undue financial benefits from their association with a charity. The organizations said it should be acceptable for trustees who are lawyers, accountants, and other professionals to provide services to the charities they oversee. They said those professionals often offered below-market rates to the charities they were affiliated with and they feared nonprofit groups would suffer if they had to pay more to obtain services.

Neither of the associations seems to care that that view flouts the nonprofit world’s tradition of not paying board members, as well as the standards for nonprofit behavior set by the Wise Giving Alliance. What a principle to uphold: “It’s OK if we can save money.”

Another important issue on which many groups have taken reprehensible positions to save a buck: campaigns to ensure that no worker is paid less than a living wage. Not a few nonprofit groups, including those whose goals include working for social and economic justice, and many universities and colleges, which are supposed to promote high ideals and democracy, have refused to support campaigns to provide living wages to workers, including their own.

That is not the only case where the interests of the poor and middle class have taken a back seat to the interests of the wealthy donors who support charitable causes. Many nonprofit groups, led by Independent Sector, sat on the sidelines during the Bush administration’s successful fight to repeal the estate tax, a measure that, if made permanent, will greatly reduce private giving to charities, cut annual federal revenue by billions of dollars, and undermine the progressive tax system.

The Council on Foundations, the overwhelming majority of whose members have profited from the estate tax, refused to oppose repeal because of its fear that such an action would alienate a few very wealthy foundation trustees. The official rationale given by the council for its neutrality was that it never involved itself in tax issues, yet a number of the policy positions it takes revolve around tax matters.

Foundations have taken other steps that protect the interest of donors while harming nonprofit groups and the people they serve. In 2003, grant makers mounted a furious, well-financed campaign to defeat legislation proposed last year that would have required foundations to exclude administrative costs from the minimum payout they must legally distribute every year — thereby increasing the amount of money available in grants.

Perhaps even more disturbing than the foundations promoting their self interest was the cowardice shown by nonprofit groups that refused to support the measure publicly, even though the change would have added another $3-billion to $4-billion to nonprofit coffers every year. Even some of the nation’s most established nonprofit organizations — including foundations that secretly favored the bill — couldn’t muster the courage to be supportive. Once again the public interest took a back seat to nonprofit organizations’ cowardice and lack of leadership.

Where has the integrity of the nonprofit world gone — and why has it disappeared?

The growing commercialism of the nonprofit world is a key reason why so many nonprofit groups stress their financial interests over that of the public. Nonprofit groups that have started commercial ventures have become more reluctant to conduct advocacy and other activist efforts. Many of the country’s community-development corporations, for example, have become concerned primarily with bricks-and-mortar issues, rather than serving in the advocacy and community-building roles envisioned when they were created.

The paucity of leaders with courage to take a stand is also a big part of the problem.

The big umbrella groups that seek to represent the interests of a large number of nonprofit groups need to be the ones to step up and defend the public interest over the interests of a small number of charities and donors. To date, they have done a poor job of providing standards and examples of good conduct for the field.

Until the members of those associations and coalitions become involved in the affairs of such groups and hold them accountable, it is not likely that their advocacy works will improve. Nor will things change until board members play a serious role in policy making and in overseeing the efforts of their chief executives. Many nonprofit groups will continue to pursue policies that are often detrimental to the interests of the community at large.

Deciding what positions nonprofit groups should take on public policy should not be left just to an organization’s chief executive. Trustees, staff members, scholars, and average citizens need to begin a public discussion about nonprofit missions, values, accountability, leadership, and the public interest. Out of this dialogue might come a clearer understanding of what it takes to build a nonprofit world that truly serves society.

Pablo Eisenberg, a regular contributor to these pages, is senior fellow at the Georgetown University Public Policy Institute and author of Challenges for Nonprofits and Philanthropy: The Courage to Change, to be published next month by Tufts University Press. His e-mail address is pseisenberg@erols.com.