It seems that foundations are destined to relearn the lessons of the past.
During the McCarthy-era hearings, in response to questions about the openness and transparency of foundation activity, the chair of the Carnegie Corporation of New York said, “We think that the foundation should have glass pockets.”
In the years since, foundations have largely embraced the values of diversity, accountability, and openness as a way of recognizing and protecting the enormous freedom and flexibility that foundations enjoy to do their work.
A new Florida law heralded by its supporters as protecting the freedom of private foundations has done just the opposite: It has raised questions about what values foundations operate under and thereby could raise new limits on the tax deductions enjoyed by donors to those foundations.
The new law prohibits the State of Florida or local governments from requiring foundations to disclose certain demographic data about board and staff members, as well as grantees, without the written permission of those involved and prohibits the state from requiring a diverse board or requiring a foundation to make grants based on demographic information. The demographic data covered by the new law include “race, religion, gender, national origin, socioeconomic status, age, ethnicity, disability, marital status, sexual orientation, and political-party registration of its employees, officers, directors, trustees, members, or owners.”
Clearly, government should not be in the business of deciding who sits on foundation boards or which nonprofit organizations receive grants based on demographics. However, the idea that government is prohibited from requesting diversity data as it relates to board composition, staffing, and nonprofit grantees undermines the promise that foundations have made to the American public that they are committed to diversity, inclusiveness, accountability, and transparency in their operations.
Unchallenged, the Florida law will inevitably undermine public support for philanthropy.
That is because the new law calls into question what had heretofore been accepted about the virtue and value of transparency as promoted by key organizations that set standards for foundations: the Council on Foundations, Foundation Center, and Independent Sector.
For example, the Council on Foundations, which represents about 2,000 foundations, states: “In carrying out their philanthropic activities, our members embrace both the letter and spirit of the law. Our members seek diversity and inclusiveness in order to reflect the communities they serve and to ensure that a range of perspectives contribute to the common good and the development of their mission in a changing society.”
Similarly, the Foundation Center, a research organization that collects information on grant makers, states: “Transparency and accountability are key to earning the public trust.”
And Independent Sector, which represents charities and foundations, advises “open and timely sharing of financial, governance, and program information.”
These words lose all meaning unless these organizations speak forcefully to the dangers inherent in the Florida law.
The Florida law appears to succumb to the strategy that it is better not to collect information because doing so might uncover uncomfortable information that we might be asked to act upon. The overreaction by some grant makers to California’s proposed legislation, introduced in 2007, that foundations be required to collect data on the race and ethnicity of their boards, staff members, and grantees was in response to a simple requirement to collect data. Some grant makers feared that the public would learn something from such data that might lead to potential regulation.
Imagine if a law such as the new Florida law applied to the financial and banking industry.
Would we think that banks should not be required to disclose data about the racial or gender demographics of customers who received or were denied loans? Would we accept a law that prohibited government from asking these institutions to collect and publicly disclose racial, ethnic, gender, or socioeconomic data? Would we allow these institutions to suggest that such data could be revealed only with the written permission of those involved? Do we really think that such a perspective serves the public interest and ensures effective best practices for foundations or any industry? The answer is of course not.
Part of the problem is an unwillingness by some private foundations to recognize that a foundation’s assets are not private but instead money for the benefit of society. It is not unreasonable to assume that, in exchange for receiving a tax benefit, individuals accept responsibility to direct charitable funds to broadly benefit all of us.
Voters—and, more important, their elected representatives—are unlikely to continue to provide charitable tax deductions to institutions that have little commitment to transparency and accountability. Some policy makers have already suggested that the current tax deduction for charitable giving be limited so that more money is available for government programs. Unfortunately, the Florida law only strengthens such thinking.
At a time when the public is demanding ever greater levels of transparency and accountability from business, from government, and from philanthropy, this law suggests that foundations are above requirements to share any information about the demographics of their board, staff members, or the nonprofit organizations that receive grant support. Such a law simply raises the question for all to ask, which is what are these powerful and influential institutions hiding? Are they so out of touch with the direction of society that they believe the public is requiring less rather than more disclosure?
For decades, foundations have successfully used their stated commitment to the values of diversity, openness, and accountability to avoid onerous federal and state regulation and legislation. Our success has occurred even though research from the Council on Foundations and Foundation Center has shown that the actions of foundations have not yet matched their words.
Unfortunately, the Florida law is likely to create a state-by-state battleground that will lead to the need for a federal law. It is now time for foundation leaders to determine whether our stated commitment to values of diversity, accountability, and transparency has any real meaning. If we do not forcefully respond to this challenge, we should not be surprised when there are Congressional hearings and our claims of “glass pockets” fall on deaf ears.