Transparency and Self-Dealing Matter

self-dealingBy Richard Marker

[Caveat: This post contains both a philanthropy and political point of view.]

Being a funder is a power position. The more money one gives or can give, the more power. Whether that is the way it should be is beside the point.

The NGO/NFP sector is existentially dependent on the largesse and beneficence of those with money. The challenge of how to accept, mitigate, reject the power of those funders is real and all nonprofits understand that. Hopefully, all funders understand that with power comes responsibility.

This power dynamic is the reason that foundations, and the principals and trustees, have certain legal obligations that attempt to bring some equilibrium and an element of fairness to this imbalance. For example, there are limitations on certain related parties in doing personal business with a foundation with which we are involved. Our insider status gives us an advantage. The law is concerned that we insiders might benefit from money we control but isn’t ours. And with more specificity than applies to any pubic charity, the law is adamant about real estate transactions, compensation, purchases, professional services, etc. After all, a foundation may have a funder’s name on the door, but the money is no longer the funder’s – it has been given for the public good and not for private benefit.

To control for that, there is a required transparency regarding where the money is spent: every single grant, no matter how large or small, must be listed on the publicly available tax return; each board member and key staff members must be listed on that same return with information about compensation; there are certain reporting requirements, investment guidelines, limits of control of for-profit businesses, and much more that apply only to private foundations. And, while it is called an excise tax, private foundations even pay a tax on earnings, unlike public charities.

The penalties for violating these rules can be severe, even draconian.

All of this is a way that the law attempts to control for the power of money and the unusual control that a funder has in using money that is no longer his or hers. To repeat, the law reminds us, over and over again, that the public good must trump private inurement. [hmmm, pun intended.]

It seems that no less should apply to a president and any other elected official. They have chosen to run to do public service. The public, therefore, should have access to transparent evidence that this so-called public service is not a way to enable private inurement. Public tax returns are one way to assure that. Surrendering control of private businesses to disinterested parties is another. Recognizing that relatives are interested parties with built in conflicts of interest is a third.

We, through the law, believe that there should be limitations on the exercise of power for every single private foundation. It seems to me that, at the very least, the same should apply to our elected officials, all elected officials, whose power far exceeds even the very largest private foundations, and the potential for abuse far exceeds that of those very same foundations.

Transparency and self-dealing matters. We should insist.

[eJP note: The opinions of the author should not be regarded as statements of the views of eJewish Philanthropy, its editors, advisors or funders.

However, we believe it is important to emphasize, especially post-Madoff, that anyone who thinks transparency and self-dealing does not matter in the Jewish philanthropic world including at our largest organizationsis living in an alternative universe.]

Richard Marker advises funders and foundations on their philanthropy strategy through Wise Philanthropy, and teaches philanthropists and foundation professionals at both Penn’s Center for High Impact Philanthropy and NYU Academy for Funder Education.