Text of Article on Public Trust That Nonprofit Coalition Refused to Publish

Emmett D. Carson, president of the Minneapolis Foundation, wrote the following article at the invitation of Independent Sector, which he said refused to publish it unless he removed references to the James Irvine Foundation and four charities or verified that published allegations involving the organizations were true.

Nonprofit organizations (including foundations) have historically operated with little government

oversight and minimal press scrutiny. This is remarkable for an industry that is reported to have over $200-billion in private giving change hands annually. This situation has existed because legislators, the press, donors, and the general public have had no reason to believe that nonprofit organizations were anything other than what we have claimed to be — institutions of high ethical standards that raise charitable dollars and rely on a largely volunteer governance structure to improve some aspect of our communities. Unfortunately, the future of our sector relies on recognizing that this is no longer the public’s perception of our industry.

Following the charitable response to the tragedy of 9/11, the public has been bombarded with media stories questioning the ethics, integrity, and operations of nonprofit organizations. The negative press is disturbing both because of what is alleged and because the allegations involve some of the most well-known nonprofit organizations, including the James Irvine Foundation, the Nature Conservancy, the United Way of the National Capital Area, PipeVine Inc., and the Red Cross, among others. It should be noted that the public sees little distinction between different types of nonprofit organizations.

Our sector’s relative silence to allegations of mismanagement, excessive executive and trustee compensation, and self-dealing at some of America’s most promi-nent nonprofit organizations is troubling. Instead of sharing the public’s outrage and leading the charge to endorse strong proposals that would prohibit such behavior, our national, regional, and local nonprofit membership organizations appear paralyzed. It is not sufficient for our sector to respond to these allegations by saying that no laws were broken if we fail either to satisfy the spirit of the law or to pass the public smell test. Our failure to act has created the dangerous public impression that we either condone the alleged behavior or are incapable of effective self-regulation to prevent it.

The nonprofit sector’s most important commodity is the public’s trust. It is more important than personal relationships or individual reputations. It is more important than any member’s dues. It is more important than maintaining collegiality. Without the public trust, our entire sector will find it increasingly difficult to raise funds, recruit volunteers, or advocate as part of the democratic process. In addition, we will find ourselves under constant legislative assault and media scrutiny. It is unlikely that HR 7 [the Charitable Giving Act], a poorly formulated bill as it relates to the payout provisions, would have gained the traction it has without the questions raised about the James Irvine Foundation and others, coupled with our sector’s apparent indifference to the magnitude of the allegations. Moreover, additional legislation and adverse press are likely to continue (and would be warranted) unless we can effectively respond to the allegations that are being made.

In mourning the nonprofit sector’s loss of innocence, the sector’s reactions can best be understood in the context of the five stages of grief: denial, anger, bargaining, depression, and acceptance.

Denial. Many in the nonprofit sector refuse to believe that the standards of accountability for all sectors — for-profit, government, and nonprofit — have unalterably changed. Despite scandals involving Enron, WorldCom, and the Catholic Church, among others, and the new Sarbanes-Oxley law that establishes rigorous standards for corporate governance, those in the denial stage seem content to bury their heads in the sand, in the belief that if they do not acknowledge that the rules have changed then they can continue to operate as they have. They are mistaken.

Anger. Others in our sector are looking for someone to blame for the higher standards of accountability. The short list includes: the media, for “creating” stories; critical commentators such as Pablo Eisenberg [senior fellow at Georgetown University Public Policy Institute] or Rick Cohen [president of the National Committee for Responsive Philanthropy], for voicing contrary opinions; the right wing that wants to discredit and de-fund progressive organizations; and a Congress that has reduced taxes that support social programs and is looking to foundations to help minimize the negative impact of their budget decisions. But neither the media nor the critical commentators created the stories, nonprofit organizations include both conservative and progressive organizations, and, like it or not, nonprofit organizations are subject to the will of the electorate as manifested by the Congress. The reality is that public trust in all institutions has declined and our sector must adjust to the new realities.

Bargaining. There are a number of people who think that we can cut some kind of deal to get things back to the status quo. For example, in the case of HR 7, some foundation leaders think that it is possible to withdraw the proposal to reduce the excise tax on private foundations in exchange for leaving the administrative payout provision unchanged. While we can negotiate to make HR 7 a better bill, we can’t bargain our way back to the way things used to be.

Depression. Those who have adhered to the old rules feel depressed that they are being judged by the actions of a few. They feel that they are being unfairly punished. This is understandable; however, it is no different from what occurs in the other sectors and underscores the importance of protecting the integrity of the philanthropic enterprise.

Acceptance. Few nonprofit organizations have accepted that there are new standards of accountability. In this new environment, nonprofit organizations recognize that they must be the champions of best practices with regard to ethics in how they conduct their business and efficiency in their delivery of services. Individually, and through their membership associations, they are intolerant of any nonprofit organization whose actions jeopardize the public trust that must be enjoyed by all nonprofit organizations.

After we have accepted that we will never regain our lost innocence, what must we do for the public to renew its trust in our sector?

1. We must establish and advocate for the highest standards of accountability and publicly repudiate the actions of any who violate those standards. We need to develop better data in order to establish independent and defensible benchmarks for nonprofit executive and trustee compensation, rather than relying on self-reported averages that do not reflect market conditions, performance criteria, or, in some cases, public sensibilities.

2. We must give the public tangible examples of how nonprofit organizations and foundations are tackling the big issues of our day. In the same way that nonprofit-sector membership organizations have rallied together to exert our influence on HR 7, we should bring that same influence to bear in raising awareness about the lack of health-care coverage for Americans, the AIDS epidemic, the housing crisis, and the poor performance of public-school students, among other issues. We need to recognize that the public is not interested in the survival of any particular nonprofit organization but rather is interested in each organization’s distinctive efforts to make our communities better places.

With this dual approach, we should be able to establish a new bond of trust consistent with new standards of accountability and transparency.