We are living in urgent times. Needs and uncertainties multiply in the context of energy and food insecurity, inflation, war, and attacks on democracy. The expectations and pressures on funders understandably continue to grow in the face of this urgency. The question of the value of the endowed foundation model must be posed again. When the world is on fire, should long-life foundations reconsider their time span and focus on the present?
One of the advantages of an endowed foundation is that it can make an independent decision about the temporal nature of its work. And this is a question it should ask itself repeatedly. In 1966, McGeorge Bundy, the president of the Ford Foundation, said that “a foundation should regularly ask itself if it could do more good dead than alive.” He concluded then on behalf of Ford that “we find that there is no present reason to believe that the world will have less need of a large foundation in 1980 than in 1967; the forces we help to counterbalance are not likely to be smaller – the need for an independent agency not likely to be less.”
Bundy was not wrong. The Ford Foundation continues to this day to contribute in significant ways to the struggle for social justice under its leader Darren Walker. But it doesn’t mean that the question should not be raised or the answer not tested.
Nor is the question unique to Canadian and American philanthropy. It is being posed on both sides of the Atlantic. At the Philanthropic Foundations Canada Conference on October 4 in Montreal, I will be speaking in a session on the legitimacy and temporal challenges of foundations in Canada and in Europe with my colleague Michael Alberg-Seberich of Wider Sense a philanthropy consultancy in Berlin. In Europe, philanthropy is being challenged by the consequences of war, with its pressures on migration and energy supply compounded by inflation. We in Canada face similar pressures from inflation. The increasing costs of climate emergency are also creating enormous negative impact, which falls disproportionately on those most in need. Both in Canada and in Europe there are increasing worries about the strength of democratic institutions. The rise of social media, the narrowing or polarization of public opinion, the lack of trust in leaders and institutions, the decrease in volunteering and civic engagement are all contributing factors to the weakening of democracy. We are seeing low turnout in our elections. Europe is facing shifts to the right and to extremist political views.
The urgency of the present is clear. Foundations must respond, in ways that support their social legitimacy. How should foundations change in reaction to these pressures and what can, or must they do to help our societies adapt? What is the role of foundations today in supporting democracy and civic engagement? Should foundations engage more directly in activism and what might that mean for foundation public accountability? Should they simply spend down? Are we facing a call for radical change in the long-life philanthropic model?
There are no easy answers. But one question that foundation leaders could ask themselves now is whether to think differently about risk. Michael and I have both had long conversations with foundation leaders over the last year. Risk came up frequently. There are many risks for foundation leaders to manage: financial, administrative, legal, regulatory, and reputational. Foundations arguably focus too much on risk particularly when considering impact investing, or unconditional funding, or more participatory and trust-based grantmaking strategies. In the public eye, many foundations are seen as too risk-averse, and this limits their responsiveness. How can foundation leaders think more creatively about risk in turbulent times and avoid retreating into what is safer? Should we think of risk as being something for foundations to embrace as fundamental to the unique value they bring to society? So many important questions. Our conversation at the PFC Conference promises to be a lively one. More to come.
As a long-time nonprofit director, I have reflected on what we can learn from the governance car crash that appears to be the WE Charity and its affiliated structures. I have wondered: where was the WE Charity board as this evolved? Charity Intelligence and others have pointed out the multiple failures in this situation. But does one example prove that boards of directors are the Achilles’s heel, the fatal vulnerability, of nonprofit organizations?
Without commenting further on We Charity, this is a moment to consider what I would call the “seven sins” of nonprofit board behaviour. Many of these sins stem directly from a lack of independent oversight. Others arise because the board has not asked enough questions about the policies of the organization. All of them suggest the importance of having independent and external sources of information and advice.
Independent auditors are great sources of information, and advice. Their job is to ask questions. As part of their responsibilities they can suggest improvements to financial management and practices. But while a nonprofit board can develop comfort and trust in an auditing firm that is deeply familiar with an organization, especially if it accompanies an evolving and more complex organizational structure, the board needs to be willing to get fresh eyes periodically on financial issues.
This often goes with the first “sin”. Risks evolve as situations change and especially as complexity increases. To assess risk effectively, boards need to be willing to engage regularly with outsiders whether auditors, external advisors or sector peers. Fresh eyes on risk are key.
Boards of incorporated nonprofit organizations have a minimum of 3 directors. Many if not most recruit more. The essential thing is to have enough independence from the organization that directors can ask challenging questions without discomfort or fear. Board directors don’t “own” their organizations. They need to be able to take some distance in order to fulfill their duty of care and not fall into the trap of over-familiarity and obligation.
These policies are important. They shouldn’t just be a page in the board director’s manual. Directors as part of their duty of care must be conscious of the need to declare a situation where their own interests and those of the organization are entwined to their private benefit. Most directors of charities are not paid but they may have other conflicts. They need to adopt and believe in conflict of interest policies, and to declare conflicts as soon as they see them.
A board’s job is not done if it commits only to the minimum of transparency in releasing annual financial statements and reports to the regulator. Board directors need to disclose who they are, and they should also ask their organization to be regularly and proactively transparent about their mission, operations and strategies.
This is a component of transparency. If an organization is lobbying government for a contract, or more broadly for a change in public policies, it’s important for the board to ask managers to be vigilant about disclosing and registering activity, depending on how significant it is. It isn’t always necessary to register as a lobbyist. But if the organization is spending a lot of resources, or is working with outsiders to influence government, it should be willing and proactive in making that public.
This is the big one. If you are too close, or too far, you risk committing some of the six other sins. Boards need to find the right balance in their roles. The thing is that boards are not the only structures that “govern”. They are not the managers nor the top part of the organizational hierarchy although they do have a unique fiduciary responsibility. They are not the only shapers or custodians of an organization’s strategy, finances or reputation. Directors bring their ideas, skills, networks and critical eyes to the table. Yes, they should play a fiduciary role and also a creative and generative role, in partnership with others, most importantly the organization’s staff but also with donors, partners, and other organizations working in the same field. They should reach out, share ideas, stay connected to the context within which their organizations work. The best directors keep their ears open, use their voices and bring their sharpest thinking to the table.
I see signs of more creative thinking about the roles of nonprofit boards. The excellent ongoing work on Reimagining Governance by the Ontario Nonprofit Network and Ignite NPS puts the spotlight on the importance of broadening governance beyond the board itself. As the problem is framed by the Reimagining Governance initiative, “governance of nonprofit organizations isn’t well designed to be consistently effective and able to respond to today’s complex environment, nor the future.” Reimagining Governance suggests that boards should be considered as an important part of a broader governance “ecosystem” that shapes an organization’s mission, strategies and performance. Governance should not be equated solely with the boards of directors. This puts too much expectation and too much burden on boards to be all things and it makes volunteer board recruitment and leadership an increasingly difficult task. Let’s not allow the WE Charity apparent failures of WE Charity governance to make us more nervous or risk-averse about governance. Let’s hope that the discussions provoked will give fresh urgency and creativity to rethinking and broadening our views about the ecosystem of non-profit governance, especially in these demanding times.
I was intrigued by a recent Twitter thread from Rhodri Davies, Head of Policy at Charities Aid Foundation(CAF) in the United Kingdom and leader of CAF’s think tank, Giving Thought. Rhodri is a thoughtful and experienced observer of philanthropy and the big questions that foundations face as social actors. In his thread, @Rhodri_H_Davies notes that he is trying to tie together various strands of current critiques of plutocratic philanthropy in the 21st Century and possible responses to those critiques. He came up with an acronym RECODE, to set out six criteria for “good” philanthropy: a philanthropy that counters the critique suggesting that it is only the sphere of an elitist group of plutocrats trying to whitewash their wealth through an arrogant deployment of philanthropic resources for their own benefit. The acronym stands for: R, risk-taking, E, enough (scale), C, contextualised, O, open, D, democratic, and E, environmental (urgency of climate change).
Rhodri invited comment on RECODE from observers and practitioners of philanthropy. He acknowledges that no one example of philanthropy needs to meet all six criteria. But these do provide some guidance to what one should be considering if one was a philanthropist of any scale, interested in being effective rather than merely self-interested. So, I gave this some thought in a Canadian context. I agree that these responses to philanthropy’s critique would apply in a Canadian philanthropic context, even without the prominence of plutocrats that we see in the US. But I wonder if we need to reflect more on the question of power in philanthropy: who has it? Can it be shared? Does it need to be deliberately addressed for philanthropy to have as much impact as it should? Using this lens, and staying with RECODE as an acronym, I propose that E could stand for empowering (partners and grantees) to address power imbalances, and C could stand for collaborative, or taking a power-sharing approach to working together.
Taking this speculative thinking further, the more compelling acronym instead of RECODE but something much simpler and more direct: REAL. REAL takes into account the power imbalance between funder and grantee and tries to mitigate it. R for Resource, or ensuring that any initiative is resourced enough, in as open-ended a way as possible, without unnecessary conditions; E for Empower, or enabling community partners to have greater agency and voice; A for Adapt, or focusing all philanthropic efforts on the critical need for adaptation to the transition that our world faces away from unsustainable growth based on carbon; and L for Listen, or for keeping an ear open constantly to the views and voices of communities.
Does this line of speculation resonate? Would you have a different acronym to suggest?
A note about E for Environmental:
Philanthropy needs to get REAL these days about the urgency of the disruption and need for adaptation posed by climate change. Rhodri Davies is right in suggesting this as his final “E” in RECODE. As an eminent Canadian such as Mark Carney, former Governor of the Bank of Canada and Bank of England, now UN Special Envoy on Climate Change and Climate Finance, has noted: “A question for every company, every financial institution, every asset manager, pension fund or insurer: what’s your plan?” I would add that this is a question for every foundation or philanthropic organization in the face of climate crisis: what’s your plan for contributing to net-zero (carbon) by 2050?
As an environmental funder (and maybe all foundations should be today, at least in part) you can: fund work to promote policies or to contribute directly to preservation of natural carbon sinks such as forests, oceans, and sustainable agricultural lands; commit to building resilience in communities facing the consequences of climate change; work on strategies to manage the stresses on food, water and housing that will inevitably occur. Even if your work doesn’t have an environmental focus, as foundation you will be faced in this decade by the disruptions caused by climate change to communities, jobs, and most aspects of life. What can you do as a funder to face and ease the transition? As Carney and others repeat: transition, transition, transition. This is the word that will resonate most in the years of this decade. And it is the word that philanthropy must grapple with, in a REAL way.