As Donald Trump takes office this month, it will be more important than ever that nonprofits are strong, unified, and effective as they seek to fend off threats to important programs that serve the needy.
But the power and capacity of nonprofits have been so diminished by poor leadership and governance irregularities — combined with a lack of federal oversight — that it’s hard to imagine many victories unless drastic changes are made soon. In particular, we need changes in how charities and foundations are regulated and in how they, organize their advocacy efforts, and distribute their charitable funds.
Here are six steps that could make a difference.
Transform Independent Sector into a new powerful coalition solely of charities.
Such a group’s prime purpose would be to mobilize the power and influence of nonprofits to shape new public policies and counter the domination of philanthropic institutions in setting the agenda.
When John Gardner, the former Health, Education, and Welfare secretary and Carnegie Corporation of New York president, founded Independent Sector, he envisioned a large and influential organization of nonprofits that could ensure high standards and provide leadership to improve the quality and performance of nonprofits.
Against his wishes, Independent Sector became a mixed group, including foundations that have exerted a heavy hand over the coalition. As a result, it has been relatively small and ineffectual and has not provided the guidance and leadership that Mr. Gardner once imagined.
A resurgent and reorganized Independent Sector could provide the muscle, coordination, and power nonprofits need to offset the encroachments of an unfriendly administration.
Establish an independent commission to oversee and regulate charitable organizations.
It’s time to close the Internal Revenue Service’s unit that regulates nonprofits and create a new agency that would have subpoena authority and a 10-year appropriation of federal money set to ensure its stability and authority.
The IRS has never had the money, staff, or political will to be an effective regulator. It has permitted egregious scandals among nonprofits to fester and has not had the resources to weed out and turn down unsuitable applications for nonprofit status or to conduct sufficient audits to determine whether nonprofits are following the law.
A new organization, one created as a quasi-government entity like the British Charity Commission, could establish within its ranks a new division for the oversight of nonprofit hospitals and higher-education institutions. Since hospitals and colleges compose half the wealth and income of the nonprofit sector, they need to be monitored and held accountable by an independent organization.
In addition to creating this entity, Congress should also provide money to support the activities of state attorneys general, most of whom don’t have the money to regulate nonprofits in their states. Their budgets need to be supplemented so they can at least perform a minimally acceptable job of oversight and regulation.
Force foundations and donor-advised funds to give more every year.
It’s time to increase the minimum annual distribution levels of foundations to 7 or 8 percent of net assets, rather than today’s 5 percent. At the same time, Congress should set rules for donor-advised funds to meet similar payout rates and give away all their money within seven years of placing it in a fund. And in all cases, it should be clear that trustee fees, consultant payments, and operating expenses can’t count toward that payout amount as is now permissible.
But it’s not just payout rules that would help nonprofits. To ensure that all nonprofits have access to grant money, foundations over a certain size should be required to accept and review unsolicited proposals.
Today over 80 percent of America’s 100,000 private foundations do not accept unsolicited proposals, and the number is growing every year. Increasingly, small nonprofits — especially those focused on helping the poor — have been squeezed out of the competition for foundation grant money. This situation is unacceptable in a democracy, especially when the tax breaks donors get for their philanthropy are coming from the pockets of average Americans.
Limit the size of foundations.
To curtail the growth of megafoundations and democratize large family foundations governed by two or three family members, new foundations should be allowed to hold no more than $15 billion in assets and must be governed by boards of at least seven members if their assets exceed $200 million.
Existing large foundations like those created by the Gateses and Waltons should be allowed to exist as they are for at least 20 years but should be expected to split into smaller funds within 20 years.
In addition, all large family foundations should be required to broaden their boards to include a majority of members who are neither family members nor their representatives. If they refuse, they should be required to shutter within 10 years of their creation or a decade after the measure is passed.
During the next 20 years, we can expect enormous growth in huge foundations run by two or three family members who distribute billions of dollars, supported by taxpayer subsidies. Such institutions will increasingly pose a danger to democracy and democratic institutions.
Antitrust measures that have been applied to corporate America should equally apply to American foundations.
Require greater transparency from all grant makers and nonprofits.
While many donors and nonprofits have defended their right not to disclose either their grants or their benefactors, such a stance is no longer justifiable. This data should be public information.
All nonprofits should be required to reveal the names of their supporters, and donors should be required to list all the grants they have made to nonprofits.
Establish a billion-dollar fund to improve private watchdog groups and the monitoring of nonprofits.
Foundations should work with nonprofits and investigative journalists to strengthen existing watchdog groups, create new ones, and promote a culture of criticism among nonprofit leaders.
The fund would be independent, have its own board, and channel money to the most promising groups and individuals.
Until relatively recently, news organizations served as an important oversight mechanism for nonprofits. The demise of many daily newspapers and the loss of outstanding investigative reporters have changed this equation, leaving nonprofits more unaccountable than ever. Nonprofit investigative journalism centers are too few and underfunded to fill the gap in coverage, and most don‘t pay much attention to charities or foundations.
The lack of scrutiny of nonprofits is abetted by the small number of publications devoted to news about nonprofits, as well as by the absence of tough, independent critics of the field. A few academics have emerged as serious critics, but we need more scholars to focus on nonprofits and hold them accountable.
Charity and foundation watchdog organizations are too few and often too weak to do a decent job of holding nonprofits accountable.
The National Committee for Responsive Philanthropy, which I helped to found about 40 years ago to oversee foundations and other donors, has done some yeoman work in pushing donors to raise their standards, change their priorities, and improve their performance. Yet there are signs the organization is changing course from strong advocacy and public policy to a more cooperative approach with foundations. Maybe another organization needs to be created to monitor foundations and play a watchdog role.
Years ago the nonprofit world could boast of outstanding leaders; people like John Gardner, Waldemar Nielsen, author of the Golden Donors, arguably the best book written about foundations, and John Filer, chair of Aetna, who as chair of a special commission appointed by John D. Rockefeller III to examine philanthropy’s responsiveness to public needs, had great credibility to articulate an enlightened vision for nonprofits. There are no such comparable voices today.
Developing forceful leaders and critics is one of the major challenges facing the nonprofit world today. While there are no easy solutions, one thing is clear: More than ever, our society needs nonprofits that are clear of scandal and greed, publicly accountable, led by visionary people of integrity, and motivated by nothing but a desire to improve our world.
Pablo Eisenberg, a regular Chronicle contributor, is a senior fellow at the Center for Public & Nonprofit Leadership at Georgetown University’s McCourt School of Public Policy. His email address is pseisenberg@verizon.net.
