Trust and Corruption

(Mark Rosenman is emeritus professor at Union Institute & University and a frequent contributor to PhilanTopic. He lives in Washington, D.C., from where he drew many of the examples of the national problems cited below.)

Self-serving and dishonest actions in both the public and private sectors are severely testing the trust and confidence of Americans. That's a problem for government, for courts and the criminal justice system, for corporations and business leaders, and, yes, for the nonprofit sector.

It's a much more significant problem, however, for the larger society. Are we destined to slide further toward the pernicious levels of corruption so prevalent in other parts of the world? Can the already strained fabric of American society hold as growing numbers of public, private, and charity officials scramble to profit, legally and otherwise, from their positions? What happens when the fundamental American belief in fairness is undermined by declining confidence in the institutions we all rely on?

Make no mistake, confidence in our institutions is declining. Since the early 1970s, those of us who have a "great deal" or "quite a lot" of confidence in our institutions, including banks, newspapers, and the medical establishment, has fallen dramatically – in some cases by more than 50 percent. Confidence in religion, the Supreme Court, schools, organized labor, and the presidency has fallen by 25 percent or more, while fewer than 25 percent of us have a "great deal" or "quite a lot" of confidence in big business.

Charitable organizations don't fare so well, either. Following a precipitous drop more than ten years ago, a recent survey found that over a third of Americans have "not too much" or no confidence in nonprofits. Meanwhile, Congress's approval rating has fallen to an all-time low of 10 percent.

Interestingly, the few institutions that have shown gains in public confidence include the military and the police and criminal justice system. But while the military is the most respected of American institutions, a series of recent incidents is beginning to take a toll. They include a scandal involving two Navy officers and a senior agent with the Naval Criminal Investigative Service, and a series of misconduct charges leveled at senior military officers for abusing their positions and accepting illegal gifts. His confidence shaken, Secretary of Defense Chuck Hagel has demanded a broader investigation.

Nonprofits Must Speak Out Against Poverty and Income Inequality

(Mark Rosenman, professor emeritus, Union Institute & University, is a frequent contributor to PhilanTopic. In his previous post, he argued that the rush by many to embrace social impact bonds is another example of private profit crowding out a public good.)

In the battle to stem and reverse widening economic inequality in the United States, too many tax-exempt organizations are either missing from action or are part of the problem. While charities and foundations in general do much to help the poor and indigent, some organizations and institutions actually make the problem worse through their own compensation practices. At the same time, these organizations and others often go out of their way to disassociate themselves from policy debates on a host of related issues, from increasing the minimum wage to preserving government programs for needy families.

The good news is that both Democrats and Republicans in Congress have started to pay more attention to poverty and economic inequality. Given the profound ideological differences between the parties, however, there is a great deal of disagreement about how government ought to address these problems and what kind of nonprofit programs it ought to support. Unfortunately, charities and foundations cannot truly serve the public interest unless they engage in these debates — today and into the future.

First, though, let's consider the deteriorating economic circumstances of many Americans. While most of the 15 percent of Americans living in poverty are children or adults who do not participate in the labor market, close to 1 in 4 of the 46.5 million people in the United States who are poor do work; that's 7 percent of the country's total workforce, and among other things it means the poverty rate today is as high as it has been since 1965.

What's more, income inequality in the U.S. has reached historic levels. Based on something called the Gini coefficient, the United States now ranks 32 out of 34 OECD member countries in terms of inequality; in fact, we haven't seen these levels of inequality since the 1920s, just before the onset of the Great Depression.

It gets worse. In the three decades prior to 2010, the top 1 percent of Americans increased their share of the national income by 66 percent, while those at the bottom of the economic ladder actually lost ground. Meanwhile, 95 percent of income gains since 2009 have gone to the top 1 percent, who now claim 22 percent of the national income, while the richest 5 percent of American households control more than 60 percent of the country's wealth.

SIBs: Private Gain or Public Good?

(Mark Rosenman, professor emeritus, Union Institute & University, is a frequent contributor to PhilanTopic. In his previous post, he argued that foundations and advocacy organizations need to rethink how their resources can be deployed to build the infrastructure and institutions of democracy in the twenty-first century.)

Not long ago, New York City and Goldman Sachs began to experiment with a new financial instrument known as a social impact (or pay-for-success) bond that raises capital from the private sector for nonprofit social programs which in the past would have been funded largely by government. If, after an agreed-upon period of time, the program in question is able to demonstrate success, the investors are paid back, along with a profit, by their government partner. The concept has generated a fair amount of buzz, in part because deficit-strapped governments, underfunded charities, and resource-constrained foundations see SIBs as a potential new source of program dollars.

Unfortunately, the SIB model is being touted as the next best thing without any critical examination of the assumptions behind it or the funding crisis which drives it.

What, for example, would happen if taxes were cut to the point that government is hard pressed just to fund defense/public safety, entitlements, and its own operations and so has to turn to private investors who demand a profitable return to finance critical public infrastructure and nonprofit services? If some have their way, we're likely to find out.

Philanthropy Not Talking Power

(Mark Rosenman is an emeritus professor at the Union Institute & University and directed Caring to Change, an initiative that sought to improve how foundations serve the public. In his previous post, he urged nonprofit leaders to do more to restore Americans' confidence in the sector's ability to serve the common good.)

In a way, foundations are partly to blame for the dysfunction in Congress. After all, conservative-leaning foundations helped build the Tea Party movement and are still supporting it and many like-minded organizations. Reasons for assigning blame to moderate and progressive foundations are less obvious -- and mostly have to do with actions not taken and opportunities squandered.

In the wake of the government shutdown and the destructive and economically costly legislative brinksmanship around the debt ceiling, some leaders in the foundation world are calling for philanthropy to play a more active role in healing our democracy, fixing a broken Washington, and developing an immediate action plan in support of those ends.

They rightfully note, as have others, that the myriad issues of concern to foundations and nonprofit organizations are powerfully affected by the actions of and funding provided by government. They point out that moneyed private interests continue to trump the public interest when it comes to policy. And they note the growing sense that economic inequality in the United States may be undermining belief in the American dream and our very system of government.

What's more, a survey soon to be released by the Center for Effective Philanthropy finds that a majority of U.S. foundation leaders view the "current government policy environment" as a significant barrier to their organizations' ability to achieve their programmatic aims -- and those responses were gathered before weeks of acrimonious debate in Congress and the sixteen-day shutdown of the federal government.

Hey, Wall Street, Can You Spare a Dime?

(Mark Rosenman is an emeritus professor at the Union Institute & University and directed Caring to Change, in Washington, D.C. In his last post, he urged nonprofit leaders to speak out when confronted with evidence of illegal or unscrupulous behavior in the sector.)

While religious groups and nonprofit organizations are forming new coalitions and joining established leaders in the fight to preserve the charitable tax deduction, most charities have remained silent about cuts in government funding for domestic needs. Even more disturbing, few in the nonprofit world seem aware of a new legislative initiative that could add billions of dollars to such programs -- and their own funding streams.

Senator Tom Harkin (D-IA) and Rep. Peter DeFazio (D-OR) have introduced a financial transaction tax modeled after one approved by the European Parliament that is being adapted in eleven nations. Oddly, though Harkin and DeFazio's version of this "Wall Street speculators sales tax" has attracted support from over forty national nonprofit organizations and labor unions, it has not captured the imagination of local and regional charities or nonprofit sector leaders.

According to one study, up to $350 billion a year might be raised by a tax on equity and bond trades as well as the trading of options, swaps, futures, and other derivatives. Such a tax would not apply to the day-to-day financial transactions of individuals or to things like loans and debt issuance.

Silence Isn’t Golden

(Mark Rosenman is an emeritus professor at the Union Institute & University and directs Caring to Change, an initiative that seeks to improve how foundations serve the public. In his last post, he urged PhilanTopic readers to assess how they value the things they value.)

Confronted by headlines about truly questionable practices at a few dozen charities, the response of too many nonprofit leaders has been to bury their heads in the sand and try to pull the hole in after them. What these leaders fail to appreciate is that silence in response to scandalous behavior is neither golden nor in their best interests.

By now, most of you have seen the carefully researched list compiled by the Center for Investigative Reporting, in partnership with the Tampa Bay Times and CNN, of "America's 50 worst charities" -- tax-exempt organizations that "channel most of the money they raise to professional solicitors, mimic other charities' names, deceive donors on telemarketing calls, divert money and contracts to people with ties to their organizations, and use accounting tricks to inflate the amount they report spending on their missions."

Yet, despite overwhelming evidence of self-dealing by these groups and their closely associated entities, key leadership organizations in the sector, including Independent Sector, have responded to requests for comment from the press by declaring that they didn't have enough information to make a judgment, while others have defended outrageous fundraising percentages diverted to what the California Association of Nonprofits' Jan Masaoka labels the "philanthropic-consultant industrial complex."

When it comes to nonprofits, these kinds of abuses are nothing new, and neither is the timidity of nonprofit leaders in condemning them. Their silence in the past has greeted media coverage of huge salaries paid to charity officials, outlandish benefits, self-dealing within boards, tax gimmicks for donors, and malfeasance in program operations. Unfortunately, the cost of that silence is something we all bear.

What We Value

(Mark Rosenman is an emeritus professor at the Union Institute & University and directs Caring to Change, an initiative that seeks to improve how foundations serve the public. In his last post, he wrote about accountability -- or the lack thereof -- in government, business, and the nonprofit sector.)

In his State of the Union address, President Obama called for government-provided student financial aid to somehow be tied to the value of the education which it helps underwrite. While it's an interesting idea, it presents a challenge not only to institutions of higher education, but to every nonprofit organization in the country. Put simply, who gets to measure the value of any charitable program? Who gets to stipulate their purposes and assess their performance and the outcomes they deliver?

Although such data are not readily available, we know that the White House believes that how well a particular college or university's graduates do in the job market after graduation ought to be a part of a "college scorecard." We also know that Sen. Marco Rubio (R-FL), who gave the Republican rebuttal to the president's State of the Union address, feels even more strongly about the idea and has joined with Sen. Ron Wyden (D-OR) to push The Student Right to Know Before You Go Act, which requires colleges and universities to provide detailed information to prospective students about how much one can expect to make in any given field post-graduation.

Given the state of the economy and students' understandable concerns about their futures, that makes a lot of sense, practically and politically. But should that be the principal measure of the value of higher education? When did we decide that the value of an associate's, bachelor's, master's, or doctoral degree should be quantified and measured in vocational education terms? And who decided it?

No Truth or Consequences

(Mark Rosenman is an emeritus professor at the Union Institute & University and directs Caring to Change in Washington, D.C. You can read some of his other posts on PhilanTopic here, here, here, and here.)

Nonprofit leaders, as well as those in government and the corporate world, seem unwilling to accept responsibility for their decisions and actions. Recently, the founding president of Social Accountability International, a nonprofit that works to advance the human rights of workers around the world, failed to live up to her organization's name when she vaguely defended SAI's decision to award its highest certification to a Bangladesh garment factory that burned down just weeks after its most recent inspection, killing more than two hundred and sixty workers.

As in so many similar situations, instead of acknowledging responsibility for a mistake and accepting the consequences, leaders like the president of SAI are quick to lay that responsibility on others -- and then support only minimal consequences for those assigned the blame. The corporate world saw an example of this after one of the greatest environmental disasters in recent memory, the Deepwater Horizon blow-out that released nearly five million barrels of crude oil into the Gulf of Mexico. Executives of BP, which had leased the rig and owned the rights to the undersea drilling site, remain free while two employees who were on the scene have been indicted for negligence related to the disaster.

Similarly, when it comes to the 2008 financial crisis and subsequent economic meltdown, corporate leaders who contributed mightily to the collapse have escaped responsibility for their wrongdoing. Not one top executive of Countrywide Financial, AIG, Lehman Brothers, Bear Sterns, or any other Wall Street firm has gone to jail, even as millions of Americans continue to suffer the economic consequences of their actions.

Campaign Finance and Charities

(Mark Rosenman, a Washington-based scholar-activist and director of Caring to Change, a D.C.-based effort to promote foundation grantmaking for the common good, is a frequent contributor to PhilanTopic. In his last post, he looked at the potential impact of the Romney/Ryan platform on nonprofits.)

Charities depend on people's trust and on the public's support for their existence. Unfortunately, much of that goodwill is being eroded by the behavior of some nonprofit organizations in the 2012 presidential race.

First, it's important to understand that there are lots of different kinds of organizations that are granted tax-exempt status by the IRS. They range from industry associations and what are called "social welfare organizations" to the charitable and faith-based groups we usually think of when we hear the term "nonprofit." Only donors to the latter, however, receive a tax deduction for their charitable donations.

For years, most social welfare organizations operated in service to a particular charitable concern and the broader community. The main difference between these organizations and charities is that the former are granted extensive powers to lobby government -- although those activities may not include "direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office." As my grandmother used to say, that's all gone to hell in a handbasket since the Supreme Court handed down its landmark Citizens United decision in 2010 -- and that hurts charities.

A lot has been written about the partisan political abuses perpetrated by what are known as (c)4 groups (that's the IRS designation for social welfare groups; charities are classified as [c]3s). Indeed, in this election cycle, (c)4s are using the secrecy afforded them by law -- (c)4s do not need to make public the names of those who fund them -- as never before to pour millions of dollars into vitriolic presidential ad campaigns intended to influence voters.

Romney, Ryan, and Charity

(Mark Rosenman, a Washington-based scholar-activist and director of Caring to Change, a D.C.-based effort to promote foundation grantmaking for the common good, is a frequent contributor to PhilanTopic. In his last post, he argued that nonprofits are missing from critical policy debates.)

With the selection of Rep. Paul Ryan (R-WI) as his running mate, Mitt Romney has changed the stakes of the 2012 presidential race. Well beyond Republican versus Democrat, the question now before Americans is who we are as a nation and a people. Over the next four years, we must make decisions about public responsibility for the common good, about what we expect of government, and of what we expect of one another. The nonprofit and philanthropic sectors cannot afford to ignore this debate.

Developed by the presumptive Republican vice presidential nominee and already passed by the House of Representatives, the so-called "Ryan Plan" would have an immediate impact on many nonprofits, especially those serving low- and moderate-income people. Ultimately, however, it would affect each and every area of government support for charitable causes.

Indeed, after announcing Ryan as his running mate, candidate Romney issued a statement trying to distance himself from the plan, even though previously he had described it as "marvelous" and said he was "on the same page" as Ryan in terms of budget priorities. Charities are prohibited involvement in electoral politics, but helping to shape a public discussion about policy and our values as a nation is essential; nonprofit and foundation leaders must declare which page they are on.

Before we take a closer look at the unfolding debate, let me point out that Mitt Romney has himself already proposed similar policies. The nonpartisan Tax Policy Center concludes, for example, that Romney's detail-deprived proposal for tax reform would give the wealthiest Americans a significant tax cut while imposing tax increases on the remaining 95 percent of Americans.

Nonprofits Missing From Big Battles

(Mark Rosenman, a Washington-based scholar-activist and director of Caring to Change, a D.C.-based effort to promote foundation grantmaking for the common good, is a frequent contributor to PhilanTopic. In his last post, Rosenman and co-author Gary D. Bass, executive director of the Bauman Foundation, wrote about efforts by Congress to curtail the advocacy rights of nonprofits.)

We are seven months from what some are calling "taxmageddon" and others describe as a "fiscal cliff." And while leaders in the nonprofit sector are narrowly focused on proposed changes to the charitable tax deduction that could reduce charitable donations by about $2 billion a year, the Republican-controlled House of Representatives has already approved cutting trillions of dollars from programs critical to low- and moderate-income people and the charities that serve them.

Charities and foundations should be gearing up to confront immediate and near-term policy battles of extraordinary consequence to them. Instead, they seem to be wearing blinders -- or simply fear controversy, no matter the stakes.

Congressional Republicans seem to want a repeat of last summer's divisive struggle over raising the debt limit and are committed to pursuing new budget cuts. This comes after the House recently approved changes to last year's deficit-cutting sequestration agreement and shifted what was a shared annual burden of $109 billion entirely to domestic programs.

House Republicans also are trying to preserve Bush-era income tax cuts for wealthy Americans, an action that if successful will cost an estimated $1 trillion in revenue over ten years -- and doesn't include the loss of billions in revenue from estate tax reductions for millionaires. They have already passed the budget put together by Rep. Paul Ryan (R-WI), a plan that goes well beyond a renewal of the Bush cuts and give millionaires an additional tax break averaging $265,000 a year while cutting over $3 trillion from programs that serve low-income people or fund the charitable programs that help them.

This is not chump change. To give you a sense of the magnitude of the proposed cuts, the shift in sequestration alone is more than the total annual giving of all U.S. foundations combined. And the so-called Ryan plan calls for cuts in domestic program over ten years that are about seven times the equivalent projected total of foundation giving -- a shortfall that would result in some two million people losing their access to food stamps and another forty-four million having them reduced. The Ryan plan also would eliminate the social service block grant through which nonprofits now provide services to some twenty-three million people, over half of them children, as well as invalids dependent on Meals on Wheels programs, those in foster care, and those who rely on nonprofit childcare.

Inequality

(Mark Rosenman, a nonprofit sector activist and scholar, directs Caring to Change, an effort in Washington that seeks to promote foundation grantmaking for the common good. In his last post, he challenged the notion that more nonprofit organizations necessarily translates into greater social good.)

Although the public and a few elected leaders increasingly are focused on growing economic inequality in America, the topic isn't receiving much attention from charities and nonprofits. This in spite of the fact that the sector itself is characterized by a similar inequality.

That silence is surprising for a couple of reasons. Today's yawning inequality exacerbates the problems many people face as well as their need to turn to charities for assistance. It also directly affects the help they're able to receive; as a general rule, the larger a nonprofit organization's budget, the less likely it is to provide the kind of assistance needed by low-income Americans and those falling toward poverty. Wealthier charities tend to cater to wealthier Americans, and as the rich get richer, inequality -- in society and the nonprofit world -- grows.

Let's look at some statistics about growing inequality in the country and then explore what it means for Americans and the nonprofit organizations that serve them. Since 1979, after-tax income for the top 1 percent has more than doubled, even as it fell for middle-class and lower-income Americans. The top 5 percent of households in the United States now hold more than 60 percent of the wealth. The imbalance is even greater in the nonprofit sector, where the top 2.5 percent of charities that report data to the IRS control more than 50 percent of the wealth and account for over 60 percent of annual revenues.

Three types of exempt organizations -- hospitals, primary healthcare facilities, and institutions of higher education -- make up the top tier of the sector. Compare their finances with those of human service groups, which comprise more than a third of all exempt organizations but account for only 13 percent of its annual revenues (including government funding, fees-for-service and other income, and donations) and 11 percent of its assets.

Do We Really Need Twelve Million New Nonprofits?

(Mark Rosenman, a nonprofit sector activist and scholar, directs Caring to Change, an effort in Washington that seeks to promote foundation grantmaking for the common good. In his last post, he wrote about commercialization of the public good. A version of this post appeared in the Chronicle of Philanthropy on Friday.)

When I learned recently via a Civic Ventures study that more than twelve million baby boomers "are interested in starting their own (social impact) business or nonprofit organization in the next five to ten years," I became alarmed.

Why do I find this aspiration so distressing? I worry that the addition of millions of new nonprofit and social enterprises -- on top of the million or so incorporated charities and foundations already registered with the IRS -- will make it more rather than less likely that we continue to view and treat critical societal issues as if they were fragmented and unrelated. And that means less effort to bring about the broad-based changes needed in our social, political, and economic institutions.

While I admire the commitment and spirit of these baby boomers -- and of the millions of others who make real contributions to improving conditions in this country and around the globe -- there is something truly incongruous in each person thinking he needs to start his own nonprofit.

And the dissonance isn't simply generational. While some entrepreneurs may want to do well by doing good and believe that is best achieved through the vehicle of her own enterprise, such individuation has contributed to the very problems that vex us.

With the number of Americans in need of help on the rise, shouldn't we be asking whether encouraging a thousand organizational flowers to bloom is the best way to respond to our current dilemma?

We know the middle class is in trouble -- and not because people are lazy or feckless. Most people have played by the rules, worked hard, and done what they thought was the right thing for themselves and their families. Yet they find themselves falling further and further behind.

Commercializing the Public Good

(Mark Rosenman, a longtime nonprofit sector activist and scholar, directs Caring to Change, an effort in Washington that seeks to promote foundation grantmaking for the common good. In his last post, he wrote about the need for foundations to think beyond advocacy. A version of this post appears on the Huffington Post.)

A couple of decades ago, with the nonprofit sector approaching 5 percent of GDP for the first time, you didn't need a crystal ball to see that the market would eventually find ways to peel off some of the larger and more profitable parts of the "charity business." And it did.

The first to fall was nonprofit health care, with everything from medical insurance programs to hospitals and clinics being converted to for-profit status. Next came higher education, as colleges, universities, and vocational schools were acquired or started by for-profit corporations. After a while, one had to wonder how long program areas such as human services and anti-poverty efforts would be spared. We need wonder no longer.

Led by the United Kingdom's Conservative government and mimicked by some in the Obama administration and various state governments, there is growing interest in something called "social investment bonds," which are intended to replace government funding for social problems with newly created opportunities for private capital looking for significant returns. As a quick look at the recent history of capital's efforts to do good while also doing well makes clear, it's but the latest in a series of efforts to substitute market models -- and values -- for altruism, philanthropy, and government responsibility for the common good.

The first of these was cause-related marketing -- arrangements in which for-profit enterprises try to boost sales and brand equity by tying some small portion of their profits to a charity or social need. Arrangements like Product RED, while generating some good, always seem to benefit the commercial enterprise more than the nonprofits they were intended to help. Indeed, studies have shown that many such arrangements actually reduce individual consumers' donations to the causes they ostensibly support, as well as altruism in general. As tax-evading Product RED spokesperson Bono once famously said, You don't have to give money anymore, you can just shop. Similarly, when corporations try to build their customer base by crowd-sourcing their contributions programs, it is only the corporations and, for the most part, tech-savvy charities that win.

Foundations and Power: Beyond Advocacy

(Mark Rosenman, a long time nonprofit sector activist and scholar, directs Caring to Change, a D.C.-based effort to promote foundation grantmaking for the common good. A version of this piece appeared on the Huffington Post.)

Grantmaking foundations are being taught an important lesson, but most of them don't seem inclined to learn it. The Tea Party movement has shown that building political power is of much greater consequence to the causes foundations care about than is their support for innovative and scaled-up programs in the nonprofit sector.

Although foundations desperately want to be "more impactful" than current practices allow, they generally settle for becoming more effective at what they already do. Rarely does any truly fresh approach to grantmaking get serious consideration. And in spite of this being a "teachable moment," too few funders fully recognize the importance of government and even fewer are willing to talk about power. Unfortunately, that has become the essential conversation.

The import of government for foundations has long been clear to some funders, many of whom have pushed themselves and their peers to provide greater support for critical public policies and programs. Today's challenge to philanthropy, however, goes far beyond its support for advocacy and an often narrow focus on parochial interests.

Indeed, what is at stake today is nothing less than who has the power to define government's role with respect to the common good. The lesson being taught foundations is that without the power to implement advocated policies, problems of concern to philanthropy will rapidly grow more complex and intractable.

Most of the troubles we face as a society, and that foundations seek to address, reflect failures of government to effectively moderate the forces that created those problems in the first place. Whether those problems originate in the failures of the market and the sometimes-destructive behavior of corporations, in the poor performance of public and private institutions, or in the dysfunctional conduct of individuals, governments can and should do something about them.

Markets and corporations need effective regulation to ensure the orderly conduct of business and to provide public protections. Institutions need leadership, accountability, and resources to promote the public interest. And individuals can both be encouraged and helped to behave in their own and society's best interests. Government is a critical player in each of these realms and an essential partner to philanthropies that seek to address problems in all of them.