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Grantee and audience surveys are one mechanism value-added private foundations can use to test and improve their own effectiveness. Indeed, rigorous feedback mechanisms are essential for institutions that face no market or electoral tests. Unfortunately, good management and hiring practices were not given their due until late in the recent debate on the Charitable Giving Act of 2003.
While in the end no charitable giving legislation was enacted in 2003, Congress appeared to have reached the conclusion that the basic 5 percent payout requirement remains appropriate and that excluding all administrative and other intramural expenses from what can be counted toward meeting the requirement would discourage accountability and good management practices. Had it taken action, it appears that Congress would have wisely allowed foundations to continue to count expenditures on intramural "direct charitable" activities and associated indirect administration expenses toward the payout. The effect of disallowing basic administration expenses would have been to increase the payout of a foundation like The Commonwealth Fund by approximately 0.2 percent. Congress may well take final action in 2004 on the separate charitable giving legislation voted by the House and Senate in 2003; if so, it is to be hoped that it will stick to the reasonable approach on foundation spending issues just described.
The recent debate revealed value-added foundations to be a severely undervalued species. Foundations and the institutions that benefit from their existence should work to improve understanding of the role of foundations, and especially that of value-added foundations, in society. The following steps would be a good place to begin:
Promote greater accountability and efficient management by individual foundations. The tendency to extrapolate from isolated instances of mismanagement or misconduct is undoubtedly encouraged by the limited amount of attention foundations normally receive from government officials and the media — and by the very fact that foundations are shielded to an unusual degree from routine public scrutiny. Plus, in the post-Enron environment, the public is even more ready to assume that governance lapses and financial misdeeds are unacceptably frequent in all sectors.
In fact, informed observers testify that truly major strides have been made toward foundation accountability over the last 35 years. Most large (and many small) foundations publish annual reports on their activities and maintain public websites explaining their work and encouraging use of it; and the tax returns of all foundations are now available on websites of independent monitors. Certainly among larger foundations, boards have become more diverse and have instituted better governance practices. There is a large and growing literature on best practices, promulgated through Foundation News and Commentary, professional journals such as the Harvard Business Review, and publications of the American Bar Association, the Peter F. Drucker Foundation for Nonprofit Management, and other professional organizations.
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