Wednesday, July 23, 2014

Eisenberg: Start Campaign to Curtail Excessive Trustee Fees

Writing in yesterday's Chronicle of Philanthropy, Pablo Eisenberg, a senior fellow at the Center for Public and Nonprofit Leadership at the Georgetown Public Policy Institute, calls on nonprofits to start a campaign to ask Congress and the IRS to curtail excessive trustee fees paid by nonprofit foundations.

According to Eisenberg, "[t]he tens of millions of dollars that foundations pay to trustees every year is a total waste of money that could be used to finance needy nonprofit organizations.  He contends that:

Fresh concerns about those fees were raised when the news become public that the Otto Bremer Foundation, which last year gave $38-million in grants, had paid its three board trustees more than $1.2-million in 2013. So egregious was the payment that Aaron Dorfman, executive director of the National Committee for Responsive Philanthropy, requested an immediate investigation by the Minnesota attorney general.

The Bremer trustees had fired the foundation’s executive director, leaving them totally in charge without any accountability mechanisms in place.

Eisenberg continues:

Data about the total amount trustees are paid are hard to come by, but a Chronicle of Philanthropy survey in 2011 found that 38 of the nation’s 50 largest foundations paid a fee to their trustees amounting to a total of $11-million.

He also reports that

[a] 2006 Urban Institute report about the compensation practices of 10,000 of the largest foundations based on 2001 tax returns found that 3,400 of the foundations had paid a total of almost $200-million in trustee fees.

Finally, he reveals that an earlier study of 238 foundations he conducted with two of his graduate students at Georgetown University in 2003 revealed that the foundations "had paid more than $44-million in trustee fees.  About two-thirds of the 176 largest foundations compensated their board members, while 79 percent of the 62 smaller foundations surveyed paid their board members."

On the basis of this sample, Eisenberg and his students estimated that foundations throughout the country had paid more than $300-million in trustee fees.

That is a lot of money.  Moreover, says Eisenberg, it is infuriating:

What has infuriated foundation critics and many nonprofits is that foundation trustees are among the wealthiest and highest-paid individuals in the country. As Aaron Dorfman has noted, most foundation trustees would take on their duties even if they weren’t paid. Most other nonprofits don’t pay their trustees, after all.

But habits die hard. Many foundations maintain that it is important to offer fees as an incentive to busy corporate and wealthy individuals who might otherwise not give their time. And, they add, it is difficult enough to recruit topnotch board members; fees just make the process easier. The corporate culture that believes "time is money" is a tradition that lingers on.

Eisenberg admits, though, that annoyance at the practice of trustee fees has not yet ­morphed into sufficient energy and public pressure that could produce some changes.  Neither philanthropic trade associations, philanthropy roundtables, nor regulators and legislators appear ready to do something about the excessive fees.  Hence, Eisenberg has a solution: nonprofits should stasrt a campaign to have Congress and the IRS curtail these excessive trustee fees.  Eisenberg concludes:

Nonprofits should start a campaign to ask Congress and the IRS to curtail excessive fees. Almost all nonprofit groups hungry for new dollars should be willing to support the idea, and how could politicians be opposed to the idea that more money goes to communities than affluent trustees? Now we just need some leadership to get the movement going.

Will the nonprofits respond?  Time will tell.

VEJ

http://lawprofessors.typepad.com/nonprofit/2014/07/eisenberg-start-campaign-to-curtail-excessive-trustee-fees.html

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