The nonprofit sector is an integral part of our society. Nonprofits contribute to our quality of life in areas ranging from healthcare to civil rights. A significant portion of funding for nonprofits comes from foundations. The foundation sector has grown substantially since the 1960s and foundations now give more than $32 billion annually. Congress has passed laws that control some key aspects of foundation function, such as how much money they must pay out and that they report all of their grants. Neither Congress nor the states, however, has seen fit to regulate much of how foundations are organized and how they spend their money. In the wake of the infamous private sector accounting scandals since 2000, however, the foundation sector has been subjected to more scrutiny. In response, foundation membership associations have created measures designed to promote higher legal and ethical standards for their members. These measures range from certification schemes to voluntary ethical principles. Whether they are effective remains to be seen. One major hurdle the membership associations face is gaining support from their members, which are often fiercely independent.
This report examines an initiative by Northern California Grantmakers (NCG), a membership association in the San Francisco Bay Area, to gain its membership’s support for adopting ethical principles. It makes recommendations to NCG on how it can prompt and support members to adopt and implement its Effectiveness and Accountability Principles (Principles). Secondly, it provides readers with a sense of what NCG’s membership, along with other knowledgeable and influential individuals, think about the 7effectiveness of current regulations, the need for future legislation, and the potential of self-regulation to increase accountability and confidence in the sector.
This report provides five recommendations to NCG about how to further its Principles. These recommendations were developed through in-person interviews with NCG members and our evaluation process. We took each recommendation made by more than one interviewee and examined its benefits and drawbacks to NCG. We selected all but one of the membership’s recommendations because they create the potential to generate additional member support and have minimal drawbacks. The recommendations we selected presented clear benefits in terms of increased transparency, dialogue, and education around the Principles to NCG and its membership. The main drawbacks of our recommendations are that one may result in membership loss and the others will require additional staff time to put into practice. We anticipate only a small reduction in membership, however, and believe NCG has the staff capacity to carry out the recommended tasks. The recommendations are:
1) Maintain adoption of the Principles as a mandatory condition of membership.
2) Provide a formal three-month comment period to solicit input on how to best implement the Principles.
3) Provide additional time for first-time members to adopt the Principles.
4) Make the Principles an integral part of all NCG programs.
5) Establish a Committee to review implementation of the Principles.