The International Journal
of Not-for-Profit Law

Volume 7, Issue 2, February 2005

By Robert Buchanan*

The Council on Foundations

The Council on Foundations, founded in 1949 and based in Washington, D.C., is a membership organization of more than 2,000 grantmaking foundations and giving programs. Members include private foundations (independent, family, and corporate grantmakers), community foundations, and other public charities, as well as operating foundations. While the overwhelming majority of the Council’s members are U.S.-based, eligible foundations in Europe and around the world are also members. The Council provides leadership expertise, legal services, and networking opportunities, among other services, to members and to the general public through a variety of programs that range from government relations and professional development to legal services, research, conferences, affinity group support, publications, and media relations.

Government Relations Activities

The Council on Foundations works to maintain and enhance a legal system that encourages all types of formal philanthropy as well as charitable giving by individuals. The Council endeavors to educate Members of Congress about the value and importance of philanthropy and is active on issues of oversight, regulation, and tax treatment of grantmaking foundations and corporate giving programs. In order to carry out its mission, the Council works closely with the Senate Finance Committee and the House Ways and Means Committee as well as the Internal Revenue Service (IRS), the federal agency charged with regulating and overseeing charitable activities. In addition, the Council may engage with other federal agencies from time to time. Because each state also regulates charities within its jurisdiction, the Council may occasionally become involved in state issues, although this is normally left to state or regional associations of grantmakers throughout the U.S.

Every two years at the beginning of each new Congress, the Council’s Committee on Legislation and Regulations develops a legislative agenda, subject to Council Board approval. The Council generally takes positions on issues that it deems will have a direct and primary effect on the health of the field of philanthropy. Guiding principles for the selection of legislative issues for Council action include sustaining and promoting a legal and regulatory system that encourages a responsible, effective, and independent philanthropic sector, as well as favorable tax treatment of private foundations and public charities that preserves and strengthens tax incentives for charitable giving.

Recent legislative issues in which the Council has been engaged include reducing the federal excise tax on private foundation investment earnings, opposing unnecessary restrictions on donor-advised funds, and increasing appropriations for IRS enforcement of existing charity laws. The Council also maintains close contact with the IRS staff members who oversee charities, seeking clarification of ambiguous rules, commenting on proposed new rules, and advocating helpful regulatory changes. In addition, the Council is currently leading an effort by a broad group of U.S. charitable-sector organizations to develop an alternative to the U.S. Treasury Department’s ill-advised voluntary guidelines for anti-terrorist financing, which are having a chilling effect on cross-border grantmaking by U.S. foundations and other charities.

While the principal contact with Members of Congress, congressional committee staffs, and key regulators in the IRS and other federal agencies is made by members of the Council’s staff, the positions they articulate are based on extensive consultations with Council members through the Committee on Legislation and Regulations and other Council committees, at Council conferences and special meetings around the country, as well as through listservs, teleconferences, and other forms of communication. At the same time, the Council recognizes that its individual members have an important role to play in advancing the Council’s legislative agenda through contact with their respective senators and congressional representatives, both in Washington, D.C., and through their state or district offices. Washington Update, the Council’s newsletter on legislative and regulatory issues, is circulated to members regularly, and bulletins on urgent topics are issued through an e-mail Legislative Network as needed.

For the past eleven years the Council has collaborated with the Forum of Regional Associations of Grantmakers to organize “Foundations on the Hill,” a one-day event early in the year that brings grantmakers from around the country to Washington, D.C., to meet with their congressional representatives. As part of the day’s activities, training is provided on dealing with lawmakers and staff members with whom the participating grantmakers have previously arranged appointments. The event is focused on educating congressional representatives about the contributions foundations make to the public good in the legislators’ districts as well as nationally and internationally. Such visits can develop strong and lasting relationships with legislators that can prove highly beneficial when the lawmakers are called upon to vote on legislation affecting foundations.

Promoting Ethics, Accountability, and Public Trust

In 2004 the Council on Foundations undertook a new, member-initiated two-year program designed to increase understanding of legal practices and to develop and encourage adherence to high ethical standards in grantmaking. Linked to this effort is a joint initiative with the European Foundation Centre to develop principles of accountability and effectiveness specifically for international grantmaking.

Following are excerpts from a speech titled “Building Strong and Ethical Foundations: Self-Regulation and Government Enforcement,” by Dorothy S. Ridings, President and CEO of the Council on Foundations, delivered at the National Association of State Charity Officials Conference, on October 25, 2004:

“Some think a membership organization like the Council on Foundations has no business promulgating codes of ethics or otherwise facilitating self-regulation by philanthropic organizations. Others think that what we do is not enough. The staff of the US Senate Finance Committee does not think what we do is enough, and they drafted a 19-page discussion paper last summer that in some ways would radically overhaul the state and federal regulatory enforcement and oversight of the non-profit sector. . . .

“Certainly, self-regulation has limits. It will not catch those who are intentionally using charities for private gain. We need you to do that. But self-regulation is not a matter of either/or. We will work hard every day to maintain an effective, transparent, and responsible philanthropic sector; at the same time, we urge you to make it a priority to investigate and punish those who willfully and flagrantly abuse their roles as stewards of private wealth dedicated to the public good.

“Transparency hasn’t typically been the first word that came to people’s minds when they thought of private foundations. Few foundations engaged in voluntary reporting about programmatic goals and accomplishments, and even attorneys general had difficulty getting basic information necessary to determine if fiduciary duties were being carried out. Today, more and more grantmakers are communicating to the public about what they do, and the public in turn has unprecedented access to an organization’s annual information return filed with the IRS. We have reached this stage bit by bit, working together. . . .

“On the other hand, effective governance has come under increasing scrutiny and skepticism by the public in recent years. Decades of hard work and self-regulation, aided by the minimum standards set by government regulations, are being marginalized by a level of cynicism and skepticism we’ve not see for decades – cynicism and skepticism fueled by revelations of alleged wrongdoing we have been reading about in the press. . . . In our field, the stories have involved excessive compensation, ethical lapses, conflicts of interest and downright self-dealing. . . And we simply, absolutely cannot ignore these stories, or wish them away. As leaders and good stewards of philanthropy we must open ourselves to discussions with each other, our grantees, Congress, and the public about these issues.

“Throughout its 55-year history, the Council has worked to improve the governance of foundations. We serve the public good by promoting and enhancing responsible and effective philanthropy. It has not always been an easy road. In 1980, the Council distributed to its members the first version of ‘Principles and Practices for Effective Philanthropy.’ Two years later, the Council required its members to subscribe to them. This prompted some members to quit in protest to what they believed were efforts to dictate how they carried out their missions. Generally, the principles and practices encourage foundations to make their purposes and actions widely known, improve the effectiveness of grantmaking, review grantmaking programs to changing needs, comply with the law, and avoid conflicts of interest. In 1990, the Council adopted a policy on compensation of directors and trustees. This was revised in 2002, and an additional policy was adopted on determining reasonable executive compensation. . . .

“The need for self-regulation will never be supplanted. . . . Self-regulation is what we do at the Council by providing answers to more than 4,000 requests for information we have received so far this year from our members about what grantmakers can and should do and cannot and should not do. One-fourth of these queries were answered by our legal department.

“As we have done in the past, we are also embarking on new ways to promote accountability among grantmakers. . . . As a part of that new examination we have launched a major initiative aimed at governance and stewardship. We call it ‘Building Strong and Ethical Foundations: Doing It Right,’ and it has a two-fold agenda:

• To provide more education – through regional convenings, publications, and other means – about legal requirements and their interpretation, to board members, executives, and professional advisors, and
• To discuss and develop standards that exceed legal requirements while insisting that the basic legal requirements are enforced by federal and state oversight agencies. . . .

“We’ll deliberate about revamped internal enforcement mechanisms against foundations that intentionally violate the rules. We are developing compliance kits for both federal regulators – the Internal Revenue Service – and state-level charity officials, to help them better understand our field and target and penalize offenders when appropriate and merited by the facts. We hope to work hand in glove with the regional associations of grantmakers on this, since the regional associations . . . know their landscapes so much better than we ever can. . .

“The Council’s own curriculum for grantmakers and new CEOs will focus on ethics and accountability. We have begun outreach to recognized professional groups such as those serving lawyers, accountants, and financial advisors, to help improve their overall ability to advise and serve philanthropic institutions and individuals. We will reach out to new foundations entering the field, to help them get off to a good start in terms of ethics and accountability. We believe it is our job as a national membership organization to help create the curriculum, and the venues, for open discussion of the excellent governance that is such a hallmark of our field. And as long as the need exists, so will our educational efforts. . . .

“We are not alone in developing standards for effective governance. Some state and regional associations of grantmakers also have developed guiding principles and practices for grantmakers. . . . The work will go on. Self-regulation alone will not deter intentional wrongdoing, and government regulation alone cannot provide guidance to the thousands of foundations and charities that want to learn about how they can improve their effectiveness and how they can achieve the highest ethics and standards in the field of philanthropy. Self-regulation and government enforcement of the laws each has a basic role to play in ensuring that the non-profit sector and philanthropy will continue to make their unique and vital contributions to society.”

Notes

* Robert Buchanan, buchr@cof.org, is Director of International Programs at the Council on Foundations in Washington, D.C. This article originally appeared in the Winter 2004-2005 issue of the Social Economy and Law (SEAL) Journal, published by the European Foundation Centre. We are grateful to SEAL for permission to reprint it.