Ethics in grantmaking

Mary Mountcastle

Grantmaking at its best is a joyous fulfilling activity.

I am constantly humbled by the creativity, compassion and commitment of those in the nonprofit sector who often work long hours without the compensation or recognition of other sectors.

When it often seems that the world is going to hell in a handbasket, my faith in humanity is restored by the wonderful work I see in communities across North Carolina.

As grantmakers, we are lucky to help support this kind of work.

At the same time, there can be some tricky situations where grantmakers need to be clear about conflicts of interest that can range from the really significant – a board member is employed by a prospective grantee – to the more mundane – do you let a grantee buy you lunch or give you a ticket to an event (I don’t).

These are important questions at a time when all kinds of institutions are being questioned by a cynical public, and when too many of our colleagues are betraying the public trust through excessive CEO or trustee compensation, fancy buildings or by using foundation funds to advance their own social prominence and connections.

We have to provide our own leadership in this because no market or outside forces push us.

What are some situations to watch out for?

Board service.  Service on nonprofit boards is a great way to learn about the opportunities and the challenges facing nonprofits, and to contribute our time and talents, as well as our treasure, to causes and organizations about which we are passionate.

As an individual donor, you should definitely contribute to organizations where you serve on the board.

However, it’s trickier when you are part of a collective grantmaking entity, whether that is a giving circle, women’s fund or foundation.  It’s way too easy to unduly influence a decision or to limit questioning from your fellow trustees because they don’t want to ask hard questions while you are in the room.

Upfront disclosure of the conflict is mandatory, and I recommend having the person with the conflict leave the room while the decision is being made.  People are often surprised when I tell them I cannot advocate for a grant to them if I am on their board because of my conflict of interest.

Compensation.  Most nonprofit and grantmaker boards serve as volunteers, although many will pay for travel or lodging expenses associated with board service.

Some foundations pay their trustees for their service, believing that it engenders more accountability and professionalism or that it permits people to participate who could not otherwise afford to take time off from work.  Any compensation of this type should be modest and well justified by the amount of work involved in the service.

Connections.  Another complication is when a member of a board or giving circle is employed by a prospective grantee, or when the foundation has a contract with a firm employing the family member of a staff or board member.

In all these cases, the conflict should be openly disclosed and the person with the conflict should have no input into the decision-making process or evaluation of the performance.

Some people don’t like to admit that they have a conflict of interest because they think it is a comment against their integrity.

I’ve heard people refer to a conflict, such as board service for a grantee, as a conflict of loyalties versus a more serious conflict of interest that involves some kind of potential financial relationship such as employment or a contract.

But conflicts are a fact of life in our interconnected world and should not be a problem as long as we are up front about the conflict, disassociated from the decision-making process and transparent about it to the outside world.

Mary Mountcastle is a long-time trustee of several family foundations and sometime student of philanthropy.

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