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Speaking out – Tough accountability needed

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[Editor’s note: The following is slightly adapted from a speech at the annual conference of the North Carolina Center for Nonprofits on Oct. 9 by the president and CEO of the Minneapolis Foundation.]

By Emmett D. Carson

It is my firm belief that our field would greatly benefit from the same kind of healthy discussion and vigorous examination of success and failure that is considered critical to the continual advancement of the fields of science, medicine and the law, among others.

The inability to openly and candidly discuss what ails our sector, who and what caused it, and how to learn from it is hurting our field.

Without the courage to name names and cite examples, we will continue to repeat the same mistakes.

The result will be that the public’s trust in our sector will continue to decline until we will find it difficult to successfully raise funds, recruit volunteers or productively participate in the democratic process.

In March 2002, I was privileged to have been asked to give remarks as part of Georgetown University’s Waldemar Nielsen lecture series that were subsequently reprinted in the Nonprofit and Voluntary Sector Quarterly as “Public Expectations and Nonprofit Sector Realities: A Growing Divide with Disastrous Consequences.”

In that speech, I maintained that the nonprofit sector has both an image problem and a substance problem.

The image problem is that the sector is not operating consistently with commonly held public perceptions about how charitable organizations should operate with regard to setting compensation and use of volunteers.

The substance problem is that our sector is spending far too much time marshalling our resources on issues of self-preservation rather than on improving the quality of life for citizens.

I suggested that the Congressional hearings on the charitable response of the nonprofit sector following the tragedy of 9/11 was a direct consequence of this growing public divide.

At the time, my suggestion that we had lost a unique opportunity to educate the public about the strengths and limitations of the nonprofit sector during a state of national emergency was generally greeted with either skepticism or anger.

Earlier this year, I had the opportunity to speak to foundation trustees gathered at the annual meeting of the Council of Foundations.

The talk was entitled “A Worst-Case Scenario or the Perfect Storm?” and it was subsequently published by the National Center for Responsive Philanthropy.

In that speech, I stated: “It is not enough to have standards of behavior if we are unwilling to criticize or sanction members and nonmembers alike who abuse those standards. Certainly, it is never easy for a membership organization to criticize its members, and an appropriate balance must be struck between being an aggressive watchdog and a passive lapdog. However, failure to confront members who violate the established norms of best practices may threaten the rights and privileges enjoyed by all foundations.”

Once again, I heard from many that I was either overreacting or that the current crisis was temporary and not an indication that things have fundamentally changed.

I say all of this because I want the record to show that our field wasn’t silent because we didn’t know what was at stake; we were silent because we did know what was at stake and we were afraid to act.

As any survival expert will tell you, the keys to surviving any crisis are recognizing that you have a crisis and correctly identifying the nature of the crisis.

Let me assert as unequivocally as I can that the nonprofit sector is experiencing a loss of public confidence that if not corrected will lead to even greater media scrutiny and legislative regulation.

Both Paul Light, professor at New York University, and The Wirthlin Report have documented the public’s declining trust in our sector.

It happened after questions arose regarding the charitable response to 9/11.

And, it is happening today due to the barrage of stories about the questionable ethics of nonprofit organizations, including foundations.

Our sector has recently experienced its most significant threat since the 1969 Tax Act. The Charitable Giving Act, H.R. 7, if passed, will mean sweeping and significant changes for the nonprofit sector.

In particular, the proposed revisions to how private foundations calculate qualifying distributions received considerable Congressional and media attention, in part, because of numerous stories alleging that some foundations were violating either the letter of the law or the spirit of the law.

While the initial allegations did not seem to rouse the nonprofit sector out of its slumber, the threat of congressional action did create a growing awareness among some that the nonprofit sector’s most important asset 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.

Any nonprofit organization that violates the public’s trust puts the work of all of us in jeopardy.

Also, we must understand that the public does not distinguish between grantseeking nonprofit organizations and grantmaking foundations.

Nearly every day seems to bring a new media story questioning the integrity of our sector. It is important to note that these allegations involve some of the most prominent organizations in our field and are being raised by some of the most respected media outlets in the country.

A series of articles in The Washington Post detailed how the Nature Conservancy provided a home loan of $1.55 million, a $75,000 signing bonus and $75,000 annual living expenses to the CEO.

In addition, the Nature Conservancy allowed trustees and key supporters to buy protected properties at below market rates and drilled for natural gas under the last breeding ground of an endangered bird, the prairie chicken.

Congressional leaders have stated their intention to hold hearings and the Conservancy has instituted a number of changes in response to the public outcry.

PipeVine Inc. was a national nonprofit organization based in San Francisco that processed over $100 million per year in donations from the workplace giving campaigns of companies such as Clorox, Bank of America, ChevronTexaco and the United Way of the Bay Area (PipeVine’s founder).

PipeVine abruptly closed after it was revealed that at least $2 million in donations were illegally diverted from charitable purposes to maintain the organization’s operations.

Finally, a former CEO of the United Way of the National Capital Area has been accused of inappropriately receiving more than $1.5 million for personal use with the full knowledge of some members of the board.

To further complicate matters, the multitude of media reports around the Charitable Giving Act introduced the public to what some now believe are the priorities of foundations.

The public read that at a time of record unemployment, unprecedented national and state budget deficits, private foundations were strongly opposed to an initial legislative proposal that would have prevented them from including their salaries and administrative costs as part of the mandatory five percent pay-out qualifying requirement.

What has made the debate over the payout provisions contained in H.R. 7 so difficult are the stories that have emerged reporting the salaries of foundation officers and trustees that count as part of the qualifying distribution for the mandatory pay-out.

It is important to recognize that the stories range far beyond the well-publicized news reports about the $717,000 compensation package, $104,000 in retirement parties and $26,000 in parting gifts to the former president of the James Irvine Foundation.

Let’s review just a few of the news articles that have focused on fees to trustees and directors of foundations.

* The San Jose Mercury News ran a story called “Foundations Reward Di
rectors,” leading with the sentence, “Thirteen California foundations paid $2.8 million in one year to people who wouldn’t be on anyone’s list of the needy – their own trustees and directors.”

* A New York Times article reported that the Horace W. Goldsmith Foundation pays each of its five trustees $175,000 annually.

* The Foundation Center’s electronic news update began a recent story with the sentence: “Over the past seventeen years, the Bielfeldt Foundation in Peoria, Illinois, awarded a total of $25 million in grants while paying $21 million to its founding family, the Peoria Journal Star reports.”

* The Puget Sound Business Journal found that: “Fifteen nonprofit foundations based in Washington collectively paid more than $800,000 to board trustees….”

* Finally, a study by The Center for Public and Nonprofit Leadership at Georgetown University, Foundation Trustee Fees: Use and Abuse that has received widespread press coverage found that the 238 foundations surveyed paid a total of $44.8 million in trustee fees in 1998. A total of 64 percent of large foundations paid trustee fees compared to 79 percent of small foundations.

Again, it is important to remember that these press stories are appearing at the same time that foundations and their membership organizations are asserting their opposition to any change in calculating the qualifying distributions.

At least one person in this room is thinking that some of these allegations, even if true, are not illegal.

You are right; some of these actions are not illegal. However, if they are true, they fail to satisfy either the spirit of the law or the public smell test and serve to further erode the public’s trust in our entire sector.

I mention these stories to illustrate three things.

First, these are well known institutions that have traditionally served as standard bearers of our field.

Legislators, the media and the public are right to draw assumptions about our field based on their actions.

Each and every negative media story erodes the public trust in our entire sector.

Our relative silence is interpreted as consent and our failure to speak out against perceived abuses endangers all of us.

Second, the breadth of media coverage and the range of issues examined should convince any but the most obstinate observer that the nonprofit sector should expect more and not less coverage of our operations.

Third, public expectations for transparency and accountability are greater than ever.

It is imperative that everyone who cares about this field understands and accepts that we no longer operate in a vacuum. Our most important responsibility in this new environment must be to protect the integrity of the charitable enterprise.

To achieve this, we must be seen as leading the charge for accountability and not viewed as having been forced to be accountable, kicking and screaming along the way.

To understand who should be blamed, we have to fully recognize that public expectations of accountability and transparency are not static but are fluid and that expectations are higher perhaps than they have ever been before.

The failure of the accounting industry to acknowledge how its practices contributed to the debacles at Enron, WorldCom and Tyco, among others, and to offer meaningful reforms, is what led to passage of the Sarbanes-Oxley Law that mandates new standards for corporate governance.

Similarly, the Catholic Church has realized that silence is no longer an option in responding to allegations that priests are engaged in acts of child molestation. The public will no longer tolerate it.

The nonprofit sector must learn that it is not enough to say that we are engaged in doing good if the public believes we are not acting and operating in good faith.

Time and time again, I have heard someone remark that it is the media’s fault. It is not. The belief is that the press is turning the public against us in order to sell papers. The media is merely reporting our actions and the public is judging those actions to be problematic.

The fact that our sector does not have good explanations for the questionable behavior of our colleagues is not the fault of the media.

Another popular refrain is that the current crisis is due to several outspoken commentators. This crisis was not brought about due to the criticisms of individuals such as Pablo Eisenberg of Georgetown University or Rick Cohen of the National Center for Responsive Philanthropy.

While their public comments and those of others may, at times, make us uncomfortable, these individuals did not create the circumstances that are being reported in newspapers across the country.

Moreover, open public discourse, no matter how troubling, is a vital component of a healthy, well-functioning nonprofit sector.

So, if it isn’t the media and it’s not the critics, who or what is responsible for the declining public trust of the nonprofit sector?

Quite simply, the answer is, we are. You and I are — as well as the nonprofit organizations we work for and the nonprofit membership organizations that we are a part of.

The exuberance of the 1990s coupled with the widespread acceptance of the need for the nonprofit sector to adopt for-profit business practices helped to create a new nonprofit culture in some organizations where individual excess was the legitimate reward for organizational success.

As nonprofit organizations adopted practices that were standard for the business community, we began to forget — and value — what it meant to be a nonprofit organization although public expectations never changed.

The large number of for-profit businesses that became involved in nonprofit activities during this time did not help this identity crisis.

Time constraints do not allow me to explore this point in detail; however, we are now at a point where we must re-educate the public, and perhaps ourselves, about what it means to be a nonprofit organization in the 21st century.

What are reasonable salaries and benefits necessary to attract and retain a capable and talented staff to manage complex operations?

How should we rely on volunteers, including trustees, and under what conditions should they be compensated and how should such compensation be determined?

Our sector’s challenge is to help develop a new public vision of what the nonprofit sector is and what can, and should, be expected of it.

To establish this new vision of the nonprofit sector will not be easy. I believe it will require us to do at least two things.

First, we must accept and acknowledge that public expectations for accountability and transparency have changed and our sector must be at the forefront of promoting standards and insisting that those who violate those standards be held to account.

Violations of either the letter of the law or the spirit of the law by nonprofit organizations only serve to erode the public trust that must be shared by all nonprofits and is no longer acceptable.

In accepting this situation, we have an opportunity to lead rather than react in responding to the cascade of allegations. How?

We need both a top-down and a bottom-up, zero-tolerance approach to nonprofit abuses and ethical lapses.

National and state membership organizations have an important role to play in setting the tone and many, including the North Carolina Center for Nonprofits, have issued standards of conduct for their members.

While this is a necessary first-step and was sufficient for the old environment, in today’s environment, standards of behavior in which there are no repercussions for violations, as we have seen in other fields, are insufficient.

For membership organizations to do this, they must hear a steady and consistent message from their members about the importance of accountability and unwavering support for sanctioning members who violate those standards.

Dot Ridings, president of the Council on Foundations, in an incisive article entitled, “The Core of the Council’s Conundrum,”
asks her members for precisely such feedback about what should be the Council’s role in this new environment.

In order to implement this zero-tolerance approach, we must break the code of silence and recognize the need to name names and openly discuss real-life examples.

We all learn about what to do and what not to do through concrete examples.

Wuld we support a code of silence by the medical profession that resulted in incompetent physicians continuing to practice? Would we be tolerant of a building association whose members built homes that satisfied the building codes but whose construction shortcuts nonetheless put people at risk?

I believe that we in the nonprofit sector have a similar responsibility to act. It is the right thing to do from a moral standpoint and it is the only thing we can do to ensure the continued operation of our sector.

Open dialogue about egregious behavior by some nonprofit organizations would have several positive benefits.

It would say to all concerned that such behavior is frowned upon and is not the accepted norm.

It would establish a record of best and worst practices so that our field can continue to grow, mature and learn from our mistakes.

And, the demise of the code of silence that currently protects individuals and institutions from professional and public repudiation would be a powerful incentive for boards and staffs of nonprofit organizations to ensure that any actions that they take are consistent with established best practices.

The second thing our sector must do is to demonstrate to the public the value-added of a robust and active nonprofit sector in improving the lives of people.

We must do more than passively maintain the status quo but be fully engaged in transforming the lives of people.

Imagine for just a brief moment that the nonprofit sector used the same energy and steadfastness that we used to support and oppose various provisions of the Charitable Giving Act to direct the nation’s attention to the lack of medical insurance for poor families and their children.

Or the desperate need for affordable housing in cities across the nation. Or the need to address the racial disparities in public education in communities across the country. Collectively, our sector has what Ambassador James Joseph has called “soft power.”

By focusing our soft power on the big issues of the day, we can fulfill the role of the nonprofit sector within a democratic society, potentially transform the lives of people and, in the process, renew our sector’s bond of trust with the American people.

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