By Phil Hall

Criteria for Philanthropy at its Best: Benchmarks to Assess and Enhance Grantmaker Impact
Niki Jagpal
125 pages
National Committee for Responsible Philanthropy, 2009

To read the full report, click here.

For more than thirty years, the National Committee for Responsive Philanthropy has injected a refreshingly critical voice to the field of giving.  Given the dynamics of funder-grantee relations, this perspective is often in short supply. Following a strategic planning process, the organization decided to be less of a gadfly and to frame its message as a series of positive recommendations.

The result, “Criteria for Philanthropy at its Best,” presents 10 “best practices” for funders within a four-part outline encompassing values, effectiveness, ethics, and commitment. This seemingly innocuous approach has caused a stir, as the exemplars of behavior identified by NCRP are anything but universally adopted and are often controversial.

Philanthropy at its best, we are told, allocates at least 50 percent of its dollars to lower-income or otherwise marginalized communities and provides at least 25 percent of its grant dollars for advocacy, organizing and civic engagement. Under the criterion of effectiveness, best-practice funders provide at least 50 percent of grant dollars for general operating support, with 50 percent of grants made as multiple-year commitments. In addition, the best funders are sensitive to the time constraints of their applicants and grantees, making sure to keep application and reporting requirements commensurate with grant size.

Under the category of ethics, exemplary foundations operate with an engaged and diverse board of at least five members, who serve without compensation. They maintain policies and practices to support ethical behavior and disclose information freely, including demographic data on board, staff, and grantees. In the final section, funders are advised to pay out at least 6 percent of assets annually in grants, and invest at least 25 percent of assets in mission-related ways, employ social screens, and engage in shareholder advocacy.

These points are not new to the field, and some are indisputable. Why shouldn’t philanthropy be dedicated to the welfare of our neediest and most marginalized populations, and why shouldn’t these populations have more of a say in the use of charitable resources? What’s not to like about transparency or ethical behavior?

Funders should be mindful of the significant costs they impose on the nonprofit sector through application and reporting requirements, and of the hidden infrastructure costs associated with project-specific grants. Finally, it is striking that private foundations, which registered assets of $670 billion in 2007, have largely neglected their potential for doing good through the mission-related investment.

Even so, the report comes across as prescriptive at times and even tone-deaf, both in the executive summary and in the full 125-page version. For example, all operating support is not equal: the best has been used on a small scale with grassroots or on a much larger scale with entrepreneurial and rapidly growing nonprofits, often accompanied by management assistance. The worst, common enough, is made without any critical thinking and produces no measurable impact, either for the grantee or society.

Most of the 72,477 foundations operating in the United States are small family foundations; without major legislative change, it seems unreasonable to expect their boards to be as diverse as proposed. The treatment of trustee compensation could also be more nuanced, given that many trustees function as the equivalent of foundation staff. There is reasonable disagreement regarding the sustainability of a 6 percent payout, particularly in a down market. One of the striking omissions from this report is any mention of the craft of grantmaking, which, like carpentry, can be practiced masterfully or not, by professionals and amateurs alike.

As an unexpected benefit, the report provides wonderful mini-courses on the more obscure byways of philanthropy, including the history of the excise tax, the government payout debate, and IRS audit procedures, as well as on some of the most important grantmaking movements of recent years.

At times, however, the information is gratuitous or grades into a kind of wonk-speak. Here is an example, unfortunately not an isolated one: “Feedback loops emerge: negative feedback comprises interventions that get absorbed by the system without really changing it, keeping the status quo, while positive feedback affects change at the systemic level by affecting the institutions and structures themselves.”

“Philanthropy at its Best” has provoked some heated response. Ultimately, the reader’s reception is likely to hinge on response to two key questions:

Are foundation dollars qualitatively different from other sources of support, such as derived from government or individuals?

Are foundation resources a private or public asset?

The report conveys the impression that for nonprofit organizations all money is equal, regardless of its source. We would argue that foundation money is smaller, quicker and more flexible than government money, and a more strategic source of capital than is usually found through individual contributions of the direct-mail, Internet-giving sort.

For the second, more critical question, NCRP clearly sides with the public. But it seems fair to say that the world of giving has always represented an uneasy combination of public and private interests, with both parties staking a fair claim. This can be frustrating and result in anything but best practice, but it is also a good formula for innovation.

Phil Hall is a partner of GMA Foundations.