Executive Vice President

	Executive Vice President—COO's Report Regulating Foundations: A Delicate Balance
		The Challenge: Foundations Under Heightened Scrutiny
		The Facts: A Changing Foundation Sector
		The Regulatory Dilemma
		Toward More Effective Regulation of the Foundation Sector
		Reexamining the Place of Small and Very Small Foundations
		The Foundation Sectors Responsibilities
		Do No Harm
	Printable version of this article (23 pages)

Very few foundations with assets of less than $5 million can afford the professional staff necessary to add value to the work of their grantees. There can be little justification, therefore, for substantial intramural expenses, except when the foundation is operating programs directly. At the same time, small foundations face significant challenges in handling their affairs well, including substantial startup costs, diseconomies of scale, attracting conscientious board members, and avoiding the temptations of using the foundation for nonphilanthropic ends (such as inappropriate compensation of family members). The available evidence suggests that regulators should focus their attention on this extremely large "small firm" segment of the foundation community. Yet, no amount of regulatory resources or requirements can fully address the potential for misconduct in a sector that has grown as rapidly as has the small foundation community in recent years.

Thus, the foundation community, researchers, and regulators should reexamine the rationale for encouraging the creation of foundations with assets of less than $5 million, especially given the alternative of donor-advised funds managed by community foundations or large mutual fund companies.⁽¹¹⁾

Study of the foundation sector and the regulatory challenges it presents leads inescapably to the conclusion that the sector itself must take a more active role in defining best practices, encouraging their adoption, and working with individual foundations and regulators to identify and correct abuses.

This work is already under way. In 2004, the Foundation Executives Group issued Governance Principles for Large Foundations (www.cof.org), thus adding to the recommended standards introduced in the Council on Foundations' 2002 Principles and Practices for Effective Grantmaking, and more recent Stewardship Principles and Best Practices for Family Foundations and Stewardship Principles and Best Practices for Corporate Grantmakers.

Yet publishing guidelines and books on proper stewardship and good management may not be enough. Foundation sector organizations—the Council on Foundations and regional associations of foundations—may well need to go further in their efforts to promote best practices. Foundation membership organizations should consider establishing proactive committees to which individuals concerned about particular foundations' practices might turn. Properly staffed and charged with well-defined mandates, state or regional voluntary "foundation stewardship" committees could help thwart abuses and, equally important, use information available to them as sector leaders to help regulators use their resources more efficiently—for example, by advising on the level of investigatory response appropriate to a media report of foundation abuse.

The performance of any foundation, of course, depends ultimately on the quality of its governing board, the body with legal fiduciary responsibility for its operations. Recent attention to governance issues has spurred many foundations to review their governance structure and processes and to identify and address potential weaknesses. As an example, The Commonwealth Fund's recently revised code of ethics, conflict-of-interest policy, and board committee charters are posted on the foundation's Web site.

Previous | 1 2 3 4 5 6 7 8 9 10 11 12 | Next

Previous Article | Next Article