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Posts tagged ‘foundation ethics’

The Right Question: The Wrong Solution

December 29th, 2015

Richard Marker

In a recent op-ed [“It’s Time to Tax Harvard”, Chronicle of Philanthropy, December 2015], Professor Michael Ryan Fricke addresses a legitimate quirk in American philanthropy law. Public charities are permitted to accumulate funds without any spending requirements or tax obligations. He proposes some interesting solutions to an inequity many of us have identified. I applaud his thoughtful suggestions to move the discussions onto the public policy stage.

His example of Harvard is both on target and also a problematic straw-person. It is easy to suggest that the holder of the largest endowment should have both spending and tax obligations. After all, the endowment is built on tax-deductible gifts and the earnings are themselves [on the whole] tax exempt. It is reasonable indeed to posit that there is something wrong with the picture if there is no legal obligation to spend one penny of their earnings on behalf of students or faculty or anything other than making more money.

And if this is true of Harvard or Yale, it is even truer of the massive amounts of money in donor advised funds accumulated and managed by tax-exempt entities established by investment companies such as Fidelity, Vanguard, Schwab, and more. After all, these entities don’t even have the façade of education, health, culture, or social service.

We also need to be fair. Almost all of these universities and museums do spend a respectable percentage of their endowment earnings, and, taken as a whole, the donor advised fund field does spend a respectable portion of their accumulated earnings [even if not every fund does.]

The issue, though, as correctly pointed out, is that they don’t have to. They can accumulate an unlimited amount of earnings tax-free. And all under the guise of “public good.”

Professor Fricke proposes a complex set of conditions, formulas, and ground rules to both encourage spending and to tax excess unspent earnings. In my view, his carefully articulated proposal is too complex and would apply an unfortunate administrative burden on both public charities and the IRS. Rather than examine each one of his suggestions, I would like to propose a much simpler solution: Apply the spending and tax rules of private foundations to endowments of public charities.

These rules are quite well developed and understood, and pending the long expected adjustment to simplify the calculation of the excise tax rate, pretty straightforward to administer. Simply put [and in non-legalese]: A minimum of 5% of the corpus must be spent for the purposes of the foundation. The process of how and when the amount of that corpus is determined must be pre-declared. Certain operating expenses may be applied to that 5%. An excise tax is levied on the earnings of the endowment but not to new contributions or additions to the endowment. [There is more, but this summary should suffice.]

The more consistently we treat monies accumulated for pubic good, the easier and better for all. If one wants to argue that there should be a minimum exemption for smaller endowments for public charities – perhaps – just to pick a number – under $10m, let it apply to private foundations as well as public charities.

Similarly, if it is viewed as a public good to reward spending a higher percentage, let the excise tax be dropped completely at, say, 10% for both private foundations and public charity endowments.

I am not hereby suggesting that private foundations now be treated like public charity endowments and that all of the other unique restrictions on private foundations be dropped. There are good public policy arguments for most of them and they serve to hold these privately controlled funds accountable in ways that the public should care about.

I am though suggesting a new discipline for public charity endowments. If monies are raised and invested for the public good, and tax favored because of that, there should be good reason to know that a defined amount of that money will be spent each year for the public good.

I am sure that one can argue that there might be some remaining inequitability in this simple solution, but I believe that it would be easier to apply, administer, and legislate than the well meaning but needlessly complex approach of Professor Fricke.

Livestrong and other ethical dilemmas funders face

October 24th, 2012

Richard Marker

When asked by a reporter what I had to say about the Armstrong/Livestrong issue, I clarified that my perspective was that of a funder, not of a non-profit. How would or should a funder respond: should one continue to support Livestrong given what we now know?

In many ways, this is not one of the great ethical dilemmas facing funders. Whatever Armstrong did or did not do had nothing to do with the management of Livestrong. He, as far as I know, has never been accused of financial malfeasance or manipulation of the charity he founded for personal gain. It appears that Livestrong has superb internal practices and is respected by the cancer support community. And, probably belatedly, Mr. Armstrong has removed himself from the leadership of this organization so that there would be no confusion of his role and that of Livestrong. Perhaps he should have done so earlier, and perhaps he should have also removed himself from the board as well, but [as of this writing] there has been no impugning of the legitimacy or integrity of the charity itself. This was surely not another “United Way” or even “Komen” episode.

Therefore funders, it appears, who were funding Livestrong before should feel safe and comfortable continuing to do so.

On the other hand, there is no ethical mandate that they do so. There are many worthy, respectable, well-run, and influential re-granting charities in the anti-cancer world. So discontinuing support for Livestrong need not imply a reduction in support for this cause. Someday these diseases will be eradicated completely rendering all such groups and funding superfluous but until then, there are many players in this field. So even if a caring funder wanted to go beyond and have no association with a reputation-damaged athlete, one could do so. Ethical problems avoided.

But then I saw Gary Belsky’s article in NEW YORK, “Charity on Steroids.” He raises the ethical stakes: He asks: Had Mr. Armstrong not been so famous because of his many victories, however ill-begotten, would Livestrong have ever been able to raise and allocate so many millions of dollars? And would those who supported Livestrong have been attentive to combatting cancer had Mr. Armstrong’s personal narrative not been so central to Livestrong’s persona? Do $70m of good outweigh a scandal – which took no one else’s money, and which was essentially – if not historically – irrelevant to the charity involved?

Mr. Belsky’s article leaves the questions as challenges to the readers and to funders. He implies that this is a matter of situational ethics. Indeed ethics are usually dilemmas of competing values, competing good, balancing. When matters are straightforward, there is no dilemma – only good or bad behavior. People may choose to violate standards, best practices, or the law, but when they do, it is not an ethical dilemma, only [!] a behavioral one.

As any who have taken classes with me at NYU, or who have participated in seminars on ethics, power, and best practices at conferences around the USA know, funders are faced with the intersection of law, ethics, and best practices all the time. In most cases, I have seen, the issues emerge innocently or naively: funders are surprisingly unaware of their implicit power when simply walking into a room; funders have not fully thought through what “conflict of interest” means – or how it appears – given the tremendous autonomy private funders and foundations have; many simply assume that what is legal must be ethical. To be sure, there are funders who willfully exercise power for personal gain, or because they are used to having their own way. Others may not know that “conflict of interest” is not the same as “self-dealing”, and thus requires a thoughtful pro-active foundation policy. And, yes, there are situations where the law allows behavior which most of us feel is ethically problematic – such as attorneys who may legally serve on foundation boards and be paid at the same time, having themselves written the document which guarantees them lifetime tenure in such roles.

I don’t believe that funders are any more prone to ethical lapses than anyone else, and perhaps may well be more sensitive. The overwhelming majority really do want to do good with the beneficence bestowed upon them by fortune of fate or skill. But is it coincidence that I receive so many requests to be exempted from the one [required] course which teaches funder ethics? Yet when taught, I have seen that very, very few have actually thought through many of the ethical and behavioral dilemmas facing funders every day. Most challenges to funders, and I suspect to almost everyone, are situational, and not simple or straightforward.

Mr. Belsky does us a favor: he raises a healthy challenge. Let’s not be too smug in the face of the Armstrong debacle. For us in the world of grantmaking and philanthropy, in the current political and economic environment, the visibility of philanthropy in the public square is indeed on steroids. Our stakes may not be gold medals or awards, but they most assuredly are our reputation and the credibility of our field. Much to be treasured. Once lost, they are very hard to win back.

Forbes, 9 March 2012

March 11th, 2012

Richard Marker


Rahim Kanani, Contributor
3/09/2012 @ 4:03PM

Philanthropy Expert Richard Marker on What Every Donor Needs to Know

In a recent interview with Richard Marker of NYU’s Academy for Grantmaking and Funder Education, we discussed lessons that every funder must internalize, challenges and opportunities facing today’s donor community, and much more.

Richard Marker is co-principal of Wise Philanthropy™, a firm that includes: Marker Goldsmith Philanthropy AdvisorsThe Wise Philanthropy Institute, and Green Strides Consulting.

Richard Marker, an internationally known expert on philanthropy is the Founder of NYU’s Academy for Grantmaking and Funder Education. The Academy is the oldest and most comprehensive university program teaching funders and philanthropists in the United States. In February 2007, he was recognized with the NYU Excellence in Teaching Award.

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Have there been real changes in govenance?

November 29th, 2009

Richard Marker

Most of us see, and have commented on, the changes this extended economic downturn has wrought in the philanthropy and non-profit sector.

Some are obvious: cutbacks in funding, staff, and programs.

Some are mixed: compassion funding addressing human service needs – some funders have realigned their long term priorities, some have made short term adjustments to address joblessness, homelessness, and hunger issues – but only for a limited time, adn still others have stayed the course of their funding mission, and continue to support the same organizations and causes.

Some are arguable: how long will this last and will there be any long term changes in the funding sector? Will there be real changes in transparency, governance, spend-out practices?
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