03/13/2009 09:11 am ET Updated May 25, 2011

Philanthropy Mostly For the Better: NCRP's Criteria for Governance and Transparency

In this second post on the National Committee for Responsible Philanthropy's Criteria for Philanthropy at its Best®, I'll discuss its prescriptions for foundation governance and transparency. Because I find much to agree with here, readers may find this pretty boring.

A number of NCRP's prescriptions mirror the Principles for Good Governance and Ethical Practice developed by Independent Sector's Panel on the Nonprofit Sector, of which I was a member and co-convener. There are some major differences, however.

The Panel was a broadly representative group consisting of twenty-four members from both nonprofits and foundations, which consulted eight different workgroups and advisory committees that totaled about 175 people with very diverse points of view. NCRP's consultative process was narrower because of its concern that its Criteria would become watered down. For better or worse, the tones of the two documents differ. Although the Panel made strong recommendations, it acknowledged a diversity of approaches on many governance issues. But even when NCRP's document acknowledges competing views on an issue, its prescriptions are expressed with evangelical certainty.

Also, in contrast to NCRP, the Independent Sector Panel's recommendations were explicitly intended only for self-governance and not as the basis for regulations. Even so, its Principles were not unopposed. The Philanthropy Roundtable, an organization of mostly conservative foundations, criticized what it deemed the Panel's one-size-fits-all approach. With due respect for the Philanthropy Roundtable's zealous defense of foundations' independence, its opposition seemed to discount a point that NCRP thoroughly grasps--that the extraordinary tax exemption foundations enjoy calls for high standards of governance and transparency.

As for NCRP's regulatory intentions, I should note that in his response to my first post, its Executive Director Aaron Dorfman explained that "we're including policymakers in the process not to provoke regulation but because they help get the attention of grantmakers who are all too often impervious to the nonprofit voice and to the needs of disadvantaged communities." But, of course, the main way that policymakers get people's attention is through regulation or the threat of it.

Some of NCRP's prescriptions involve ethical practices of the sort one that one would demand of any organization, public or private: a conflict of interest policy, a whistleblower procedure, and reasonable executive compensation. Others focus on foundation boards, which NCRP says must have at least five members, all of whom serve without compensation and represent diverse perspectives, including those of the communities foundations serve.

While NCRP focuses particularly on diversity based on group identity, it seems likely that many kinds of diversity--varied experiences, expertise, backgrounds, and international perspectives--could lead to better philanthropic decisions, from setting goals to determining strategies to making and reviewing grants. I imagine that the benefits of diversity depend on peoples' good faith willingness to extend a sympathetic understanding to colleagues with whom they disagree. Otherwise, diversity may just lead to deadlock. (I sometimes wonder--without being sure of the answer--whether left- and right-leaning foundations would be more effective if their boards were more ideologically diverse.)

NCRP also prescribes disclosure in several domains:

• governance policies
• priorities and the types of grants made
• how the foundation is using its investment assets to support its mission
• demographic data about its trustees, staff, grantees and the intended beneficiaries of its grants

The first two seem unquestionably beneficial. The third is based on an assumption about the value of mission investments that I'll discuss in a later post.

The fourth, or "diversity," disclosure requirement mirrors legislation championed in California by the Greenlining Institute. The Hewlett Foundation was part of a coalition of foundations that opposed the California legislation. Although most of us already directed a large amount of our grantmaking to marginalized communities, we saw the bill as part of a thinly disguised effort to pressure all foundations to do likewise. At least NCRP's motives aren't disguised, since it explicitly prescribes that 50 percent of all foundations' grant dollars should be directed to marginalized communities--another topic for a later post.

Be that as it may, for decades the Equal Opportunity Employment Commission has required organizations with 100 or more employees to report on their race, ethnicity, and gender. Whether or not it is conscious, discrimination based on race and other personal characteristics remains an unfortunate fact of American society. If nothing else, a reporting requirement for large foundations that doesn't invade employees' privacy heightens the foundations' awareness of their own practices.

By the same token, reporting on the race, gender, etc. of grantees may raise the awareness of both foundations and grant seekers. A number of foundations that I admire do this. But NCRP sends at least a mixed message when it focuses on an organization's diversity to the exclusion of its impact on people's lives.

This in effect turns on its head Martin Luther King's profound observation that what matters is not the color of one's skin but the content of one's character--or, in the case of our sector, whether foundations and their grantees are actually improving the lives of the communities they serve. I'm inclined to think that focusing on race without some assessment of impact--difficult though that may be--relegates philanthropy to its second best.