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#393 Why Transparency and Conflict of Interest Matter so much in Philanthropy

October 6th, 2020

Richard Marker

Yes, I will get to the philanthropy part in a bit, but first….

On Friday morning, I awakened to the news that the POTUS and his wife both had tested positive for the Coronavirus. As many of you know, I am not among the great sleepers, so I learned this information at 4 am. At the time, in response to some social networking posts, I predicted that by noon on Friday, there would be a slew of conspiracy theories surrounding this announcement.

I was wrong. It didn’t take that long. In fact, by breakfast time, I had already begun to see skeptics on both sides. Some of the theories were so far-fetched that they could only come from truly skewered perceptions of the world – or perhaps Russia. But others were unlikely but almost credible. Was this a staged event? If so, what was the intended scenario?

The President’s own physician, as we all saw, didn’t help matters since his Saturday update was itself not credible, or lacking in enough detail to be considered so. What was not being said? The reported timeline was, on its surface, impossible. The answers to questions were evasive and filled with lacunae. And when it was made clear to the public that the POTUS had to approve all public statements about his own medical condition, those missing pieces and inconsistencies took on even greater weight. Why should these reports be any more true or reliable than the hundreds upon hundreds of distortions of fact and outright dishonesty that have characterized the entire period of this presidency?

Is it any wonder that skeptics and conspiracy theorists and cultists all believe that we don’t yet know the full story – or that they do know the full story but the rest of us don’t? [For the moment, assuming that he does have “the Virus”, we cannot yet know the full story since the disease needs time to play out – even in the most normal of courses.] When the absence of transparency is the norm, when obfuscation is the practice of choice, and when information becomes weaponized, even those who might start with a sympathetic benefit of the doubt find themselves “just wondering.” Even if one grants that what and how to share personal information in an unfolding medical situation is not always easy, especially in a politically charged moment, the history of the absence of transparency makes everyone a bit dubious.

Well, as I said above, this piece is about philanthropy, not politics. So…

Those of us on the giving side of philanthropy are challenged with similar decisions in our own work. Rarely are those decisions as internationally momentous or as existentially portentous as the information on the medical status of the POTUS, but they do matter. Our choices can sometimes mark the life or death of organizations; more often they do have a direct impact on their health and sustainability. Those funding decisions can shape the social, ethnic, artistic, or educational landscape in profound and defining ways. And while philanthropic dollars alone cannot [and should not] sustain the entire not-for-profit and public-benefit sector or any subset of it, our dollars do define it and influence it. A lot depends on us.

Credibility, therefore, matters. Our credibility matters a lot. Grant seekers want to know what the rules are. Is the process fair or rigged? Do you have to know someone? Can they tell the whole truth about their organization or must a rosier-than-thou picture be presented? They know that somehow a decision will be made that has an impact, and rarely do they know how.

Yes, the funding world is more than a bit inscrutable. Competitive grantmaking is filled with uncertainty for those who seek funds. Unless a grant is defined by entitlement [i.e., if you meet certain criteria, you are guaranteed funds], a very rare condition indeed, every submission is being measure against a series of criteria, some of which are pre-defined, others of which are subjective.

Having been inside lots of those funding rooms, I can attest to the subjective nature of many decisions. But not for the reasons you may think. Most funders and foundations really do want to make good decisions, informed decisions, constructive decisions. We are human so there is no denying that we bring some of our attitudes and assumptions to any decision, but even allowing for that there is a subjective uncertainty. The reason, of course, is that we fund the future. Even with the most evidence-based choice, the best one can do is acknowledge the odds and the risks. As a proof-text: How many funders who made decisions about what to fund at their December 2019 board meetings got it right about what would happen to their grantees in March 2020?

What we owe the not-for-profit/public benefit field is that they can trust the process and that the decisions aren’t phony. Grantees may be disappointed and wish that they knew why they weren’t chosen. It isn’t always easy to say – any of us who have been faced with large dockets know that sometimes there isn’t a good reason. A whole bunch of proposals may have equal merit, but one has to be selected. That doesn’t mean the ones not selected were less worthy or tragically flawed. Try to tell a disappointed almost grantee that there really wasn’t anything to learn, it was just someone else’s day. Even if true, it won’t make them sleep any better.

In order for the system to work, non-profits have a legitimate expectation to know what our process is, and to be able to look at our decisions and feel that we, the funders, have been true to that process.

But for that process to work, we as funders also need to rely on genuine information from nonprofits. It is not only that insufficient information or inappropriate hyperbole may distort our decisions, but it will make it that much harder to really understand what interventions and solutions will accomplish what we both want. Transparency must go both ways. As one who has been in the philanthropy field for a very long time I can certainly give examples of willful dishonesty by those who have received or desired to receive grants, but those examples represent a very small percentage of the field. For most, if there is an insufficiency of information, or a far too optimistic articulation of capacity, it is well-intended and based on an uncertainty how to tell their story.

The burden to make openness possible is on us as funders. We need to create the environment of trust and honesty. We need to make clear that we really do need to learn from those who actually do the work we think needs to be done, and we really do need to understand what challenges, financial and otherwise, might keep that from happening.

That is why transparency of our process is indispensable.

Which brings me to conflict of interest. This is one of the most misunderstood areas on the not-for-profit landscape. Conflict of interest is not the same as self-dealing or self-inurement. Those are illegal so that is that. But in this sector, conflict of interest is an ethical question. It acknowledges that in the real-world people have competing claims of loyalty. Some of those competing loyalties may be de minimus; others may be substantial. We must reveal those competing claims, and then our boards must make an a priori judgement about what circumstances would be problematic. Sitting on a board of a foundation and also of an organization that has applied for funds in a competitive process pretty much demands recusal, at least. Sitting on the board of a foundation and also a local agency that has received funding every year for 25 years may be ok. As funders we need to take the appropriate action so that there is no possible misperception about how those competing loyalties play out when the funding docket is on the table. Organizations asking for funds have a right to know that we are aware of and addressing those conflicts – before any funding decisions are made. That is how trust is built.

For those of us in the funding world, the months since March have been a wake-up call to us about how much of what we “normally” have done has been to meet our own interests, needs, and priorities as much about those who are asked to deliver on those priorities. The vast majority of us have always been well intentioned and thoughtful but we learned that too often we hadn’t been listening to the real vulnerabilities of our grantees and their communities. All too often our processes have been needlessly opaque and byzantine – far from transparent. All too often those who make the decisions are inadvertently myopic, having an unintended conflict of interest. There may be legitimate disagreements about who should sit on what boards and who should make which decisions, but transparency and directness in acknowledging them will go a long way to sustain the viability and efficacy of our sector… especially at a time when the world needs to have confidence in us.

These are not easy matters to address as those who have undergone reviews by CEP or NCRP or participated in Trust Based Philanthropy programs or in our classes in philanthro-ethics can attest. But meaningful transparency is a sine qua non for long term success in our field.

And, let’s be honest, it would go a long way in the larger political world as well.

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The Institute for Wise Philanthropy has been teaching and advising funders, foundations, and families throughout the United States and elsewhere in the world since 2002. We welcome your inquiries.

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