November 13, 2009
New USAID Head
The New York Times and many other news outlets recently reported that the Obama administration has nominated Rajiv J. Shah to become the new Administrator of the United States International Agency for Development. This news item may seem distant from nonprofit law, but bear with me.
Nonprofit organizations (or ngos, or associations, depending on where the organizations are located) play a vital role in USAID's plans for progress in poor countries. Among many other roles for nonprofits, AID's hopes and plans for encouraging "rule of law" depend in large measure on strengthening civil society. A thriving civil society generally depends on a healthy nonprofit/ngo/association sector.
AID had for many years been the dominant player behind U.S. based development initiatives, but in recent years it has seemed in disarray. Under the Bush administration, the Millennium Challenge Corporation appeared to be the U.S. Government's favored vehicle for carrying out aid programs. AID, meanwhile, was absorbed into the State Department and seemed to be administratively under siege.
It is unclear, at least from my distant perspective, whether AID will reemerge as the leader of U.S. development programs, but our Secretary of State, Hillary Rodham Clinton, and at least some commentators, hope that it will. With a robust and well run USAID, the U.S. Government can move forward with its plans to strengthen civil society and establish rule of law, most pressingly in post-conflict Iraq and Afghanistan.
Whether or not such rule of law programs -- developed primarily in the U.S. and often based on a limited understanding of the laws and cultures of the subject countries -- have any chance of success, is a discussion for another day.
November 12, 2009
Today's Giving Section in the New York Times includes a flurry of articles related to nonprofit organizations and philanthropy. I will mention three, two of which are merely topical (but contain buzzwords that made me giggle) and one of which is troubling.
The first topical article, "Clicking for a Cause," reports the increasing use of social media as a means of both fundraising and constituency-building for nonprofit organizations. It mentions that Facebook (which I have not yet joined) offers a program called "Causes" that allows individuals to easily link their profile pages to charities. The article quotes one man as saying he was able to use the "Causes" function to raise approximately $4,000 for his favorite charity in only a few weeks. Others criticize the use of social media for charitable fundraising and organizing, arguing that it permits people to feel that they are contributing to society in meaningful ways without ever having to leave their desk chairs. This has given rise to one of the giggle inducing terms: "slacktavism."
The second topical article, "For Causes, It's a Tougher Sell," describes the rise of cause-related marketing through the 1980s and 90s and concludes, rather unsurprisingly and unsatisfyingly, that cause-related marketing is tougher in this economic climate, but is likely to survive. Somewhat like the use of social media, cause-related advertising is criticized by some for "trivializing important issues by wrapping them in ribbons and bracelets." And this leads to the second giggle inducing term: "charitainment."
The troubling article, "Charity Bankruptcy Leaves Many Donors in Distress," reports that the National Heritage Foundation, which held approximately 9000 donor-advised funds, recently underwent bankruptcy reorganization. The bankruptcy court counted the $25 million held in donor-advised funds as assets of the Foundation and used the money to reimburse creditors. This obviously was bad news for donors and for charitable beneficiaries. Individuals who had entered into charitable gift annuity contracts with the Foundation were counted among the unsecured creditors and given lump sum payments that amounted to a fraction of their initial investment. The article closes by recommending that -- particularly in this economic climate -- donors check with charitynavigator.org and similar sites before committing their money.
WSJ Diminishes Nonprofit Sector?
The Wall Street Journal recently ran a correction concerning the nonprofit sector. Earlier in the week, it had published a story reporting that foundations in the U.S. gave roughly $40 million to the nonprofit sector. The correction increased that figure to to $40 billion. Was this actually a mistake by this bastion of unbridled market capitalism? You decide.
November 11, 2009
Conflict of Interest in Art Show?
The New Museum of Contemporary Art in New York will host a show in March of art from the private collection of one of its trustees, Dakis Joannou. Mr. Joannou has become known as one of the most important collectors of modern art. He owns 40 works by Jeff Koons, and many of those works will be included in the show. Mr. Koons, now a good friend of Mr. Joannou, will curate the show. The announcement of the show has drawn criticism from those concerned about "the propriety of turning over a public museum to a private collector who also happens to be a museum trustee and a chief patron of the curator." The choice of Mr. Koons as curator has also raised questions. A story in the New York Times describes the controversy, in which prominent members of the art world have taken sides.
An Example of Social Risk Capital in Action?
When we teach about nonprofit organizations, most of us have a conversation early in the semester about why the U.S. has such a large and tax favored third sector. One of the primary justifications has to do with social risk capital: we need a sector where small groups with innovative ideas for benefiting society can incubate their projects. If the ideas are good and the projects work, and if the majority approves, government might intervene and apply them nationally. When I have this discussion with my students, I use City Year as an example. It was launched in Boston by two of my college classmates (one of whom, Alan Khazei, is a candidate for Teddy Kennedy's Senate seat in Massachusetts) as a sort of urban Peace Corps. It was wildly successful, spread across the country, and became one of the models for Americorps.
A recent article in the New York Times reports on a contemporary nonprofit project that history may or may not judge as an important social innovation: One Laptop Per Child, a U.S. nonprofit that promises to revolutionize global education by putting cheap, functional laptop computers in the hands of children in poor countries around the world. The Times article chronicles OLPC's successes and failures and concludes, more or less, that it is too early to judge. Thus far, it has distributed laptops to a million children in 31 countries at approximately $200 per -- obviously a significant accomplishment, but far less than its founders had promised.
I imagine we'll know within the next few years whether OLPC can be used, along with City Year, to illustrate the social risk capital justification for our nonprofit sector.
PRIs on the Rise?
A recent article in the Wall Street Journal reports that tough economic times are spurring more private foundations to engage in program related investments instead of merely making grants. Whereas PRIs once were the domain of Ford and the other bigs, the article claims (without offering numbers) that smaller family foundations are moving toward PRIs in the form of "equity investments in lines of credit, as well as loans, loan guarantees and mortgage financing to help organizations acquire property, create jobs or expand products and services."
If it is indeed true that there is a trend toward private foundations engaging in PRIs, I wonder whether that trend will breath life intoL3Cs, a new hybrid entity form that was designed in large part to facilitate program related investments in sustainable, low-profit social enterprises.
November 10, 2009
Future Includes Blurring of Sector Boundaries
A reportauthored by La Piana Consulting, distributed (and presumably paid for) by the James Irvine Foundation, and summarized in the Chronicle of Philanthropy, identifies trends for the future of nonprofit organizations. It is perhaps not surprising but nonetheless noteworthy that one of the major trends will be the continued blurring of lines between nonprofit and for-profit sectors. The report mentions recent innovations such as the L3C and calls on nonprofit leaders to find ways of effectively collaborating across the fading boundary lines.
Pablo Eisenberg in the WSJ
Yesterday's Wall Street Journal included an opinion piece in which Pablo Eisenberg roundly criticized the state of philanthropy in the U.S. Most of his proposed fixes are familiar to those who follow nonprofit law: increase private foundations' required pay-out from five percent to seven or eight; increase funding for nonprofit organizations' general operations and stop perpetually chasing sexy and innovative programs; fund successful projects for the long-term rather than merely a start-up period; etc.
I found two points particularly salient. First, I agree with Eisenberg's call for American philanthropy to focus more attention and more funding on the the truly needy -- the group that we lawyers refer to as the "poor and distressed." Eisenberg quotes statistics indicating that only twelve to fifteen percent of philanthropic dollars go those groups, while most dollars go to support universities, hospitals, arts organizations and the like.
Second, he calls for an improved system of public accountability, arguing that self-reform in the sector has been a "dismal failure" and that there are no other effective means of monitoring the philanthropic/ nonprofit sector. Interestingly, he argues that the only effective watchdogs of the nonprofit/philanthropic sector -- newspapers -- are fast losing effectiveness as investigative reporting and reporters go under the budget ax.
November 9, 2009
Interesting Trend in Social Enterprise
I spend much of my time supervising my law school's Community Development Law Clinic, and this year we have seen a sudden increase in requests for legal assistance by a particular sort of social enterprise. These organizations are combining sustainable agricultural practices (e.g., the development of small, organic farms) with public health programming (e.g., educational programs regarding diet and nutrition) and community economic development (e.g., attempting to revive a commercial strip in a moribund farm community by developing retail businesses that market goods -- primarily food products -- made from the organic produce). I am not sure why we are being flooded with these requests this year; perhaps stimulus funding has become available to support these sorts of initiatives.
The task of advising these groups is particularly challenging for our clinic because we focus primarily on nonprofit law and these agricultural/public health/community economic development initiatives often straddle the line between for-profit and nonprofit. In several instances, our first order of legal business is to counsel the client on what sort entity or entities they should form: nonprofit corporation, for-profit corporation or LLC, some combination of entities, or one of the new hybrid forms such as an L3C or a Socially Responsible Business Corporation. We have found relatively few resources to help us in this task, save some brief (but well done) publications by practitioners such as Robert Wexler. If anyone has good resources to suggest to help us counsel these social enterprise clients regarding proper entity choice, please chime in on this blog or contact me off-line at the e-mail address provided on the left hand column of the screen.
Minor Kiva.org Scandal
Today's New York Times reports that Kiva.org, a darling of the social enterprise/venture philanthropy movement, has been called to task for a lack of transparency regarding its social investment model. Kiva.org has built a big reputation in recent years by claiming the ability to link investors, primarily from the Global North, directly with entrepreneurial borrowers in poor countries. For example, a law professor in North Carolina could, with a few clicks of a mouse, invest in a crafts cooperative or women's sewing business in Kenya. But, according to the Times, "the direct, person-to-person connection Kiva offered was in fact an illusion." Kiva has been funneling money -- approximately $100 million to date -- to micro-finance institutions, which in turn have been lending the money to individuals and organizations in the developing world. The article quotes an American philanthropy expert as saying "If Kiva's users want to be connected to an individual borrower, Kiva doesn't do that, and so the big question is, do Kiva's users want to be connected to a micro-finance institution -- in which case, why to they need Kiva?" The article points out that specific information about Kiva's true business model is available on its web site for those willing to dig, and that Kiva now has begun to change the way it holds itself out to prospective donor/investors.
This minor flare-up should remind nonprofit law devotees of the Save the Children scandal during the 1990s when it turned out that money donated to support individual children was in fact funding more general development programs. It is also reminiscent of the trouble the Red Cross found itself in when it devoted some of the flood of post-9/11 donations to long-term programs rather than funneling the money directly to individuals affected by the terrorist attacks.