Giving sector making wrong turn in crisis

By Todd Cohen

To cope with the economic crisis, the giving sector is betraying its roots.

Instead of joining hands to better address social problems, many nonprofits are chasing handouts and looking out for themselves.

And instead of looking for ways to give more and pool resources with other funders to get more impact from their giving, many foundations are hunkering down and hoarding.

Tough times are a time when those in the giving sector should rise to the occasion by digging deeper and working together.

But in the worst economic collapse since the Great Depression, many nonprofits and foundations, despite all their talk about entrepreneurialism and collaboration, are sinking in the quicksand of entitlement and self-preservation and elbowing one another as they claw for solid ground.

Instead of rolling up their sleeves and figuring out how to strengthen, streamline and even merge their operations, big nonprofits and their trade groups are licking their chops over the prospect of federal bailout funds.

And instead of pitching in, as Pablo Eisenberg argues they should in an opinion column in the Philanthropy Journal, big foundations are doing little or nothing to offer a helping hand, let alone take a leadership role, in bailing out the sector.

What’s more, with a few honorable exceptions, foundations not only are failing to give more but are continuing to pitch a fit in the face of critics’ calls to increase the share of their assets they are required to pay out in grants.

Foundations now must pay out only five percent of their assets, and they have fought hard against an increase of even one percentage point in that requirement, arguing that any increase in the payout rate would force them eventually to spend all their assets and go out of business.

And for all the maneuvering in the giving sector for bailout funds, few if any giving-sector leaders have had the courage to push foundations to use more of their vast wealth to help nonprofits strengthen their operations and programs so they can serve more people more effectively at a time of rising social need.

Likewise, in its rush to hit up taxpayers for what easily will total over a trillion dollars to stimulate bank lending, business spending and new jobs, the Obama administration has been shamefully silent, and surprisingly blind, about the need to push foundations to shoulder their fair share of investment to stimulate the giving sector, which accounts for five percent of gross domestic product in the U.S. and 10 percent of jobs.

Banks got into deep trouble because lawmakers eased regulations and regulators fell asleep on their watch.

Foundations face far less and looser regulation and policing than banks, an inexcusable lack of oversight that must leave foundation executives and board members grinning all the way to their pricey conferences and retreats.

At those events, particularly in sessions that exclude the news media so they can talk more candidly, foundation leaders can wring their hands over the loss in the value of their endowments, congratulate one another over how effectively they govern themselves, and preach about the steps nonprofits should take to be more accountable and transparent.

In addition to letting foundations off the hook, President Obama also bears responsibility for perpetuating the idea that the giving sector is an underclass.

As Rick Cohen argues in an opinion column in the Philanthropy Journal, Obama’s promotion of public-service jobs for groups like AmeriCorps reinforces the mindset in society and the giving-sector alike that workers at community-based organizations are second-class citizens who should accept low pay for the hard work critical to addressing the symptoms and causes of urgent social problems.

The giving sector is in crisis and needs to get over its sense of entitlement and back to its roots in fixing social problems through voluntary enterprise in a competitive civic marketplace that operates with fair play and tough but even-handed rules.

Nonprofits need to figure out how to stand on their own feet and make their own luck, not beg for government handouts or grovel to foundations that talk one way, act another and cannot see beyond their own face in the mirror or the cherished cause of perpetuating their own wealth and power.

And while government can and should play a role in providing financial stimulus and incentives to the giving sector, which is critical to our economy and society but hurting badly from the economy’s meltdown, Obama should use his clout to push foundations to pay out more of their assets.

In return for the generous tax breaks they and their donors enjoy, using even a fraction more of their assets to help nonprofits do a better job is the least foundations can do to begin to shoulder their fair share of the huge job of addressing the economic crisis and social problems facing America.

Obama’s giving-sector moves send mixed signal

By Todd Cohen

“Change you can cash in on and plug into” seems to be the giving-sector policy emerging from the Obama administration.

And that is starting to dim somewhat the early hopes that the Obama administration might truly partner with the giving sector to transform the way Americans tackle social problems.

As Rick Cohen of The Nonprofit Quarterly sees it in a column in the Philanthropy Journal, much of the prowess at the nonprofits that seem to be role models for the kind of social innovation Obama champions apparently lies in their ability to secure federal funding.

Some of those nonprofits, including Teach for America, City Year and America’s Promise, Cohen says, all have been highly effective at landing support from the Corporation for National and Community Service, which runs AmeriCorps.

[Also see Rick’s analysis of policy proposals nonprofit groups have submitted to Obama.]

And while the government’s massive stimulus package includes some spending for the charitable sector, he says, nonprofits should be careful what they wish for.

“Nonprofits should not devolve into contract arms of government,” he writes in the Cohen Report. “They have to maintain their watchdog, advocacy, and organizing functions, else they give up their status as being part of a sector that is different than government.”

In their advocacy role, nonprofits “can join government and intermediaries in finding ways of making programs work,” Cohen says.

“At stake is not simply nonprofit budgetary survival,” he says, “This is essential for helping this nation out of its economic freefall. That’s the reason for an economic stimulus bill, that’s what the nonprofit sector should be focusing on, deploying resources to put this nation to work.”

Cohen also sees mixed signals in Obama’s choices, and reported choices, for officials to head a handful of key offices that will work with the giving sector.

Obama, for example, has named Cecelia Muñoz, senior vice president for the office of research, advocacy and legislation at the National Council of La Raza, as director of intergovernmental affairs.

A veteran nonprofit advocate, Cohen says, Muñoz is a good pick and could become the administration’s key player on giving-sector policy at the White House.

Directing the White House Office of Faith-Based and Neighborhood Partnerships will be Joshua DuBois, a former associate pastor and adviser to Obama in his U.S. Senate office who served as his campaign director of religious affairs.

It is not clear, Cohen says, whether that office will play a major role in federal social-change funding.

Still up in the air are Obama’s picks for other important administration jobs that will work with the giving sector, although people reportedly under consideration for those jobs have cut their teeth at Google and MTV, according, again, to good digging by Rick Cohen.

John Kelly of Youth Today, for example, reports in his Obama Job Watch that Obama plans to create a White House Office on Social Innovation and Civic Engagement, an idea proposed by America Forward that would replace the current White House Office on Social Innovation.

Heading that new office, Kelly reports, could be Sonal Shah, director of global development for, the philanthropic arm of Google.

MediaMemo blogger Peter Kafka reported Jan. 28 that Obama may have picked Katie Jacobs Stanton, a project manager at Google, as “director of citizen participation.”

Stanton worked on Google’s “Moderator” tool that let people submit questions for the presidential debates and then was used to field suggested initiatives for the new administration through its site.

And Cohen says Obama reportedly has been considering Ian Rowe, vice president of strategic partnerships and public affairs for MTV, to head the office of social innovation.

While those MTV and Google picks might be good because they would represent a departure from the “same old, same old” in the nonprofit world, Cohen says, he questions how connected those people are to the grassroots nonprofit groups that are on the ground and reflect the diversity of America’s communities yet typically don’t show up on the radar screens of Google and MTV.

Indeed. The last two possibilities – Stanton of Google and Rowe of MTV — suggest the White House may be focusing more on glitzy social-media gimmicks than on the operational and strategic focus nonprofits actually need.

As Obama showed in his presidential campaign, social media can play a powerful role in engaging and mobilizing people on an unprecedented scale.

So it would be highly productive, indeed a breakthrough, if the new administration could help nonprofits better understand and use social media to secure more support and take on both the symptoms and causes of critical social problems.

New ideas and innovative approaches by government in working with the giving sector also could signal a long-overdue recognition that the insiders’ cartel that has monopolized power in the charitable marketplace for far too long does not represent or speak for all nonprofits, and in fact works to exclude them from critical resources.

That cartel, whose self-anointed powerbrokers have been climbing over one another in their grab for federal bailout funds and for clout with the Obama administration, represents big foundations, big nonprofits and the trade groups, consultants and publications that do their bidding and serve as their mouthpieces.

If there is a giving-sector equivalent of the military-industrial complex, a kind of philanthropy-industrial complex, those powerbrokers control it.

Still, hope-filled and promising as Obama’s early giving-sector moves might seem to some, the new administration must not forget that most nonprofits are small and face huge challenges in running their shops, engaging givers, delivering services and finding the time and skills to be effective advocates.

And addressing those challenges will require more than government handouts and hip online tools that aim to engage and connect givers with causes they care about.

A tool to help nonprofits be more accountable

By Todd Cohen

With pressure growing on them to be more open about their finances, management and governance, nonprofits have a new tool to help them do just that.

The new Form 990 that nonprofits must file with the IRS requires they disclose more information designed to make them more transparent and accountable.

That is good news because, with the economy in a tailspin, and with trust in a broad range of institutions blasted by wrongdoing and excess, nonprofits need to be more open about who they are, how they operate, where their money comes from and how they spend it.

Greater disclosure is needed because nonprofits must justify to taxpayers the tax breaks they enjoy, and must show givers how they are spending the resources entrusted to them.

Nonprofits also need to show that their staff and board leaders truly are overseeing and approving their organizations’ financial statements.

Making sense of the new Form 990 is the focus of a webinar the Philanthropy Journal will sponsor on February 17.

Led by nonprofit lawyer Marty Martin, the webinar will provide an introduction and overview to key management, governance and reporting issues required to complete the new form.

The new form, which all nonprofits now must file regardless of size, reflects the first complete revision by the IRS in 25 years.

By requiring nonprofits to disclose more information about who they are and how they operate, the new Form 990 may compel nonprofit leaders to practice better management and leadership in addressing growing public scrutiny.

In today’s grim economy and skeptical society, and in a charitable marketplace in which nonprofits for far too long have disclosed far too little about their finances, management and governance, that would be progress.

Brandeis betrays its givers

By Todd Cohen

If Hollywood ever remakes a Three Stooges movie, Brandeis University should get a leading role.

The school’s decision to shutter its art museum and peddle its artwork is a knuckleheaded move worthy of Moe, Larry and Curly, making a hash of the trust of givers who gave dollars and art to the school.

Panicked by the plunge in the value of its endowment because of the collapsing economy and, apparently, losses from funds it invested with disgraced investor Bernard Madoff, the school’s move is a crass poke in the eye of its supporters.

Givers give because they trust charities to use their gifts the way the givers intend and expect them to be used.

Precisely because the economic crisis is putting them under growing financial stress, nonprofits need to be clear-headed, ethical and vigilant in honoring the intent of their givers and steering clear of ham-fisted moves like the one Brandeis aims to pull off.

The intent of givers matters: Princeton, for example, recently agreed to pay nearly $100 million in settling a lawsuit by a donor’s family that had charged the school violated the terms of a gift by failing to use the money for the purpose for which it was given.

Now, by shutting its museum and hawking for quick cash a collection of artworks that were intended to be perpetual gifts, Brandeis has become a role model for nonprofits behaving badly.

Giving is the lifeblood of nonprofits, and it is rooted in trust.

To survive the deepening financial crisis, nonprofits must be work harder than ever to earn and keep the trust of their givers.

But if, like bumbling fools, they whack their givers upside the head, nonprofits will shoot themselves in the heart.

Rays of light in the giving gloom

By Todd Cohen

While they reportedly are the grimmest they have been in a decade about the fundraising climate, nonprofit professionals can take heart from two recent surveys on giving by corporations and high-net-worth individuals.

A big lesson from both surveys is that, by better understanding and addressing their supporters’ values, needs and expectations, nonprofits have a better shot at securing critical resources.

Corporate giving is holding its own and becoming more strategic, according to a survey by LBG Research Institute.

Most corporations surveyed expect their giving will not change or even might grow in 2009, and half of those with corporate foundations say their foundation budgets will stay the same.

Forty-two percent of corporations and 37 percent of corporate foundations say their charitable giving will decline this year, but the institute predicts the overall decrease will fall far short of the 12.1 percent plunge in the 2001 recession reported by Giving USA.

And over 80 percent of corporations say their giving will be more strategic, meaning they will look more carefully at where their dollars go and will make sure their giving is in line with their corporate goals.

The report on high-net-worth giving, prepared for Bank of America by The Center on Philanthropy at Indiana University, which also reported the drop in nonprofits’ fundraising confidence, suggests nonprofits can do more to engage wealthy givers.

Wanting to give back is what drives wealthy givers, who care little for public recognition of their giving, the report says.

Those givers want to be connected to groups they support, and they expect those groups to be open and accountable and protect their privacy.

Wealthy givers use “involvement” as a way to pass their giving values to their children, who in turn tend to give through their own foundations or donor-advised funds.

And after parents, religious groups are the most important source of education about giving.

The main objective for the biggest gifts wealthy givers made in 2007 was to provide general support and make a long-term investment in the organization.

Wealthy givers also are becoming more strategic in their giving, and they have dramatically increased their use of professional advisers.

“We are noticing that the turbulent economic environment has, not surprisingly, also motivated these individuals to play a more active role in charitable decisions in terms of what they give, to whom and when,’ Cary Grace, Bank of America National Institutional Advisory Solutions Executive, says in a statement.

The two surveys suggest corporations and wealthy individuals can be valuable partners for nonprofits, the kinds of partners that nonprofits need more than ever in a tough economy.

And while they give to causes that address important needs, those givers’ giving mainly reflects their own values and goals.

Those givers also are being a lot more intentional about their giving.

Corporations’ growing focus on aligning their giving with their business gives nonprofits a great incentive to build strategic partnerships that reflect the companies’ business and community values.

And wealthy givers’ desire to provide operating and long-term support, to be involved with the groups they support, and to involve their children in their giving gives nonprofits great incentives to find more effective ways to engage those givers.

Because wealthy givers work with professional advisers and learn a lot about giving through their religious organizations, nonprofits also should make sure they are telling their story to advisers and religious organizations and working with them to reach potential givers.

The recession is fueling greater demand for nonprofits to address immediate problems and their root causes.

To do their job effectively, nonprofits need to do a better job understanding and addressing the needs of givers.