A challenge for philanthropy, inspired by the Trump and Clinton Foundations

Were Donald Trump not running for president, it's unlikely that anyone would have paid much attention to his charitable foundation. But thanks to the dogged reporting of David A. Fahrenthold of The Washington Post -- here's a list of his stories -- we now know that the Donald J. Trump Foundation operated in ways that were surely unethical and quite likely illegal. Among other things, Trump asked people or companies that owed him money to donate more than $2.3 million to the foundation, and then used foundation money (most of which came from others) to buy a life-sized self portrait and a football helmet signed by Tim Tebow. Worse, he used the foundation's funds to settle legal and business disputes. In Slate, law professor Adam Chodorow writes that Trump's behavior "evinces a shocking disregard for the law."

The Clinton Foundation is far bigger and more complicated, with assets of $354 million, expenses of more than $91 million and nearly 500 staff members in 2014. (By contrast, Trump's foundation has assets of $1 million, and no employees.) There's no evidence of misconduct, and plenty that the foundation has done enormous good around the world. (If you doubt it, see Dylan Matthews' thoughtful, close-up look in Vox or David Crane's personal take at Greenbiz.) Yet troubling questions remain about the Clinton Foundation's relationships with donors--rich Americans, powerful US companies and foreign governments, including Algeria, Kuwait, Qatar and Oman, who gave money while Hillary Clinton was secretary of state. Were they buying access or influence?

The unflattering attention paid to the Trump and Clinton foundations creates, at the very least, a perception problem for all of philanthropy.As Rebecca Koenig of The Chronicle of Philanthropy wrote:

Discussion about the candidates’ charity work has been largely negative, raising concerns that the campaign rhetoric will do lasting damage to public perceptions about charities.

Phil Buchanan, president of the Center for Effective Philanthropy, worries that this election will "create the impression that nonprofits and foundations are places of scandal and conflicts of interest, which I don’t think is, in fact, generally true."

He's probably right, but we can't be sure. Neither the IRS nor state regulators pay much attention to foundations. I imagine that that there's a big gap between the best-in-class foundations--those that are run with integrity and have the most impact--and those at the bottom of the class. But I can't be sure about that, either. We know so little about how and why foundations do what they do. And that's a problem.It's a problem for which there is a simple fix, albeit only a partial one: Foundations could open themselves up to scrutiny and feedback from the public, the press and their critics. They could, for example, invite the public to observe their board meetings and--dare we say it?--ask questions of their staff.

Transparency is a beautiful thing

Transparency is a beautiful thing. The century-old observation from jurist Louis D. Brandeis has become a cliche but it bears repeating: "Sunlight is said to be the best of disinfectants; electric light the most efficient policeman."More recently, in an excellent analysis of the Trump and Clinton foundations, Jacob Harold of Guidestar wrote:

Transparency indicates an openness to questions and accountability. And, importantly, the act of transparency can force an organization to be clear about its goals and strategy.

That would be the real payoff of opening up foundations. They would become more thoughtful and intentional about way they do.The recommendation that foundations hold public meetings isn't mine. It comes from Caroline Fiennes of Giving Evidence, a UK-based advisory and advocate for giving based on sound evidence. Last spring, Fiennes and a colleague called the 20 largest charities and foundations in each of the UK and the US and asked whether they ever have any meetings which the public can attend; only two have any meetings in public; none allows the public to ask questions, they found.

The practice isn't unprecedented, Fiennes told me by phone the other day. London-based City Bridge Trust, which helps the disadvantaged, opens up meetings of its trustees, publishes the results on its website and invites comment. Of course, federal, state and local governments in the US all hold open meetings as a matter of course. And publicly-held companies have annual shareholder meetings that are covered by the press.Foundations exist to serve the public good. That is reason enough to invite the public in to see how they do it.

What's more, foundations are granted generous tax benefits. All donations to foundations are tax deductible, of course. Foundations don't pay taxes on the interest and capital gains generated by their endowment. They may also be exempt from local property taxes, and state or local sales taxes on their purchases.As the Council on Foundations explains:

These generous exemptions recognize the important principle that organizations that act voluntarily to further the public good should be freed from the obligation to support government through the payment of taxes.

In exchange for those benefits, Fiennes simply asks that foundations and nonprofits be more accountable and transparent "to the people who provide subsidy, and to the people the charities and foundations exist to serve."

“All I’m asking for is that people to be allowed to see what’s going on," she told me. "What’s so threatening about that?”

"We’re all asked to pay for these institutions. And yet they guard what they call their independence— which we might call their lack of accountability—very closely.”

I contacted the Council on Foundations to ask what they thought of the idea of open meetings, and didn't get an enthusiastic response. I was reminded that foundations are required to disclose their grant-making on Form 990s, and that their executives regularly attend conferences where they hear from a variety of people. Which kind of misses the point, I'm sorry to say.

This isn't a new issue. It goes back to the earliest days of the republic. As the song goes in Hamilton:

No one else was in the room where it happened.The room where it happened.The room where it happened.No one really knows how the game is played.The art of the tradeHow the sausage gets madeWe just assume that it happens.But no one else is inThe room where it happens.

Foundations talk about boldness, risk-taking and innovation. I'd like to see a few bold foundation presidents take a risk and invite the public in to see how they do their work. Any takers?