Anyone concerned with good governance in the nonprofit sector — and it’s independence — should read the updated draft report on “principles of effective practice” issued by Independent Sector. The group has been working closely with the Senate Finance Committee, which for the past two years has been investigating abuses in the world of charities and nonprofits. The abuses, which usually involve excessive executive compensation and lavish perks, pop up with dreary regularity. A good example of this is what’s been revealed at the Smithsonian, the nation’s museum in Washington, where the former CEO was hauling in a $900,000 salary and more than $2 million in “office and home expenses.”
Still, many in the nonprofit world have been following this ongoing Senate investigation with more than a little worry. That’s because any new regulations of the charitable sector have the potential to impose not only burdensome new regulations but also erode the traditional independence of nonprofits from government control.
The new draft report from Independent Sector has confirmed that those fears were not unfounded. It talks about encouraging “self regulation” in the nonprofit world, but is vague about how voluntary these are really likely to be. Adam Meyerson, president of the Philanthropy Roundtable, said earlier this month that he had “two levels of concern” with the draft report.
First, we have concerns about specific proposals. In particular, we fear that some of the draft principles take a “one-size-fits-all” approach to setting rules for a very diverse sector, are an invitation to arbitrary enforcement, or would require private organizations to reveal publicly their internal decision making processes.
Second, we are concerned about how the proposed principles would be administered and enforced. Independent Sector doesn’t explain what it means by “self-regulation.” And there are some forms of self-regulation that would be seriously harmful to the foundation world and to charitable giving.
He cites a specific proposal, known as Draft Principle #6: “A charitable organization must make information about its operations, including its governance, finances, programs, and activities widely available to the public. Charitable organizations should also make information available on the methods they use to evaluate the outcomes of their work and are encouraged to share the results of those evaluations.”
Meyerson points out that there is already a great deal of mandated disclosure. What’s more, this draft principle intrudes on the privacy necessary to effectively manage charities.
Grant-making strategy and evaluation properly falls in this zone of privacy. So long as a foundation is making grants to legitimate public charities, there is no reason tax authorities or watchdog groups need to know why it is choosing some grantees over others. Quite the contrary, maintaining privacy enables foundations to exercise their honest judgment on this most sensitive of judgment calls. Maintaining privacy also protects the grant applicants not chosen and allows foundations to provide them with confidential advice.
How a foundation determines its philanthropic strategy-how it makes decisions about which grants to make, and how it evaluates performance by grant recipients-is an inherently private decision by a private organization. Foundations should feel free to reveal their grant-making strategy if they wish, and many find it in their interest to do so, but it is an unnecessary breach of privacy to compel them to do so.
Read more about this issue on the “Uncharitable Regulations” resource page at the Philanthropy Roundtable site.