Wednesday, August 27, 2014

NY Times on the U.S. Tennis Association and Possible Director Conflicts

UstaThe New York Times reports that members of the Board of Directors for the section 501(c)(6) United States Tennis Association appear to have numerous conflicts of interest.  For example, the article reports that one board member's company is the largest single contractor with the USTA, receiving almost $3 million in 2012, and another board member is the executive director of a nonprofit that received almost $1 million in grants from a USTA charitable affiliate over three years.  In response, the USTA denied that the board members had any say in the decision that led to funds going to organizations with which they are affiliated.

Lloyd Mayer

August 27, 2014 in In the News | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 26, 2014

The March of the Benefit Corporation: Next Up, West Virginia (Cross Post)

West Virginia is the latest jurisdiction to adopt benefit corporations – the text of our legislation can be found here.   As with all benefit corporation legislation, the thrust of West Virginia’s statute is to provide a different standard of conduct for the directors of an otherwise for-profit corporation that holds itself out as being formed, at least in part, for a public benefit.  (Current and pending state legislation for benefit corporations can be found here.)

As WVU Law has two members of the ProfBlog family in its ranks (Prof. Josh Fershee (on the Business Law Prof Blog) and Prof. Elaine Waterhouse Wilson (on the Nonprofit Law Prof Blog)), we combined forces to evaluate benefit corporations from both the nonprofit and the for-profit sides.  For those of you on the Business Prof blog, some of the information to come on the Business Judgment Rule may be old hat; similarly, the tax discussion for those on the Nonprofit Blog will probably not be earth-shaking.  Hopefully, this series will address something you didn’t know from the other side of the discussion!

Part I: The Benefit Corporation: What It’s Not:  Before going into the details of West Virginia’s legislation (which is similar to statutes in other jurisdictions), however, a little background and clarification is in order for those new to the social enterprise world.  A benefit corporation is different than a B Corporation (or B Corp).  B Lab, which states that it is a “501(c)(3) nonprofit” on its website, essentially evaluates business entities in order to brand them as “Certified B Corps.” 

It wants to be the Good Housekeeping seal of approval for social enterprise organizations.  In order to be a Certified B Corp, organizations must pass performance and legal requirements that demonstrate that it meets certain standards regarding “social and environmental performance, accountability, and transparency.”  Thus, a business organized as a benefit corporation could seek certification by B Lab as a B Corp, but a business is not automatically a B Corp because it’s a state-sanctioned benefit corporation – nor is it necessary to be a benefit corporation to be certified by B Labs.  

In fact, it’s not even necessary to be a corporation to be one of the 1000+ Certified B Corps by B Lab. As Haskell Murray has explained,

I have told a number of folks at B Lab that "certified B corporation" is an inappropriate name, given that they certify limited liability companies, among other entity types, but they do not seem bothered by that technicality.  I am guessing my fellow blogger Professor Josh Fershee would share my concern. [He was right.]

A benefit corporation is similar to, although different from, the low-profit limited liability company (or L3C), which West Virginia has not yet adopted. (An interesting side note: North Carolina abolished its 2010 L3C law as of January 1, 2014.)  The primary difference, of course, is that a benefit corporation is a corporation and an L3C is a limited liability company.  As both the benefit corporation and the L3C are generally not going to be tax-exempt for federal income tax purposes, the state law distinction makes a pretty big difference to the IRS.  The benefit corporation is presumably going to be taxed as a C Corporation, unless it qualifies and makes the election to be an S Corp (and there’s nothing in the legislation that leads us to believe that it couldn’t qualify as an S Corp as a matter of law).   By contrast, the L3C, by default will be taxed as a partnership, although again we see nothing that would prevent it from checking the box to be treated as a C Corp (and even then making an S election).   The choice of entity determination presumably would be made, in part, based upon the planning needs of the individual equity holders and the potential for venture capital or an IPO in the future (both very for-profit type considerations, by the way).  The benefit corporation and the L3C also approach the issue of social enterprise in a very different way, which raises serious operational issues – but more on that later. 

Finally, let’s be clear – a benefit corporation is not a nonprofit corporation.  A benefit corporation is organized at least, in some part, to profit to its owners.  The “nondistribution constraint” famously identified by Prof. Henry Hansmann (The Role of Nonprofit Enterprise, 89 Yale Law Journal 5 (1980), p. 835, 838 – JSTOR link here) as the hallmark of a nonprofit entity does not apply to the benefit corporation.  Rather, the shareholders of a benefit corporation intend to get something out of the entity other than warm and fuzzy do-gooder feelings – and that something usually involves cash.

In the next installments:

Part II – The Benefit Corporation: What It Is.

Part III – So Why Bother?  Isn’t the Business Judgment Rule Alive and Well?

Part IV – So Why Bother, Redux? Maybe It’s a Tax Thing?

Part V - Random Thoughts and Conclusions

 

EWW and JPF

August 26, 2014 in Current Affairs, In the News, State – Legislative | Permalink | Comments (1) | TrackBack (0)

What Does It Mean to be "Nonprofit"? Lawsuit Against Regence BlueCross BlueShield

Blue-crossThe Oregonian reports that lawyers have filed a class-action lawsuit in state court against Regence BlueCross BlueShield, claiming that the (taxable) nonprofit is acting like a for-profit company.  More specifically, the lawsuit asserts that Regence is accumulating excess funds to support large, executive salaries instead of using those funds to benefit its members.  The lawsuit points specifically to a public-purpose clause in Regence's bylaws that it claims is violated by these practices.  The article further reports that Regence has responded by stating that the claim is without merit and that it intends to aggressively defend itself against the allegations.

Lloyd Mayer

August 26, 2014 in In the News, State – Judicial | Permalink | Comments (0) | TrackBack (0)

Monday, August 25, 2014

WSJ on Donor Advised Funds

WSJ DAF ChartOn Friday the Wall Street Journal published online an article titled Tax-Smart Philanthropy Made Easy: Many Donors Should Consider a "Charitable Gift Trust" or "Donor Advised Fund".  The article documents the continued growth of donor advised funds, with total assets reaching $26 billion as of June 30, 2014, with new contributions and grants for the 12 months before that date reaching $7.4 billion and $4.1 billion, respectively.  The article also provides an interesting glimpse into the giving priorities of DAF donors, as the largest holder of DAFs - Fidelity Charitable - provided a breakdown by program area of where the $2.1 billion in grants it made in 2013 went.  Over a third went to education, with the next biggest areas being religion (16%), "society benefit" (14%), and human services (10%).  The article attributes the continued and indeed growing popularity of this vehicle to a bull market, increasing mergers and acquisitions, and the risk of future changes in the tax laws that make it particularly attractive to lock in a charitable contribution now while still being able to put off final decisions regarding where to give.

Lloyd Mayer

August 25, 2014 in In the News | Permalink | Comments (0) | TrackBack (0)

Church Tax Inquiries Starting Up Again (without final regs)

IRSOver the summer the Freedom from Religion Foundation announced that it had agreed to the dismissal (without prejudice) of its lawsuit against the IRS alleging that the IRS had filaed to enforce against churches the prohibition on political campaign intervention.  See previous post regarding the 2013 rejection of the IRS' motion to dismiss this case for more details.  What is most dramatic about this development is the letter from the IRS to the DOJ attached to the Foundation's Memorandum in Support of Motion to Dismiss detailing the current audit activity relating to churches.  Here is the substance of that letter:

1. Subsequent to the publication of proposed regulations on section 7611 of the Internal Revenue Code on August 5, 2009, the IRS has processed several cases involving churches using procedures designed to ensure that the protections afforded to churches by the Church Audit Procedures Act are adhered to in all enforcement interaction between the IRS and churches. The procedures require the reasonable belief determination under section 7611(a) to be made by the Commissioner, TEGE, either directly or as concurrence to the determination made by the Director, Exempt Organizations.

2. Our written procedures for our Dual Track process for information items (a.k.a. referrals) alleging violation of the political intervention prohibition of section 501(c)(3) require evaluation of the information item by our Review of Operations (“ROD”) unit and then the Political Activities Referral Committee (“PARC”). With regard to these referrals that concern violations by churches, the PARC has determined that as of June 23, 2014, 99 churches merit a high priority examination. Of these 99 churches, the number of churches alleged to have violated the prohibition during 2010 is 15, during 2011 is 18, during 2012 is 65, and during 2013 is one.

This comes after an apparent hiaitus in such activity, as detailed in a previous post.  What is perhaps most surprising is that it has come without the finalization of the proposed regulations referenced in the above letter regarding exactly who, within the IRS, has sufficient authority to sign off on church tax inquiries and, if justified, church examinations.  

While an intervenor represented by the Becket Fund for Religious Liberty sought to prevent the dismissal, according to the Becket Fund the court ultimately granted the requested dismissal.

Media Coverage:  Christianity Today; Washington Times.

Lloyd Mayer

August 25, 2014 in Church and State, Federal – Executive, In the News | Permalink | Comments (0) | TrackBack (0)

Saturday, August 16, 2014

FOSE for Change

        When I first started out in practice, I was asked to compose a paper on behalf of the State Bar of California on whether contributions to wholly-owned single member LLCs are deductible under the check the box regulations. It appears that single member LLCs are once again in the forefront of the nonprofit sector. Social enterprises wholly-owned by family foundations, i.e., family owned social enterprises (“FOSEs”), are used in the business sector, and they have the potential to be used in the social sector. Mike Miesen’s article on this topic raises an interesting perspective:

"Owning a social enterprise (or creating a disregarded entity) allows a foundation to  efficiently effect change using market mechanisms to sell a good or service, while using philanthropic resources to address market failures and advocate a cause. Critically, it is also a tax-free investment vehicle for the foundation, fulfills the foundation’s requirement to spend  5 percent of its endowment annually, and because [single member limited liability corporations] SMLLCs are autonomous legal entities, protects the foundation’s assets from any liability to which their investees expose them. We think this model could provide a more efficient option that conventional grant- and donation-based models.”

 

Khrista Johnson

August 16, 2014 in In the News | Permalink | Comments (0) | TrackBack (0)

Thursday, August 14, 2014

UK: Searching for Social Impact

        According to findings of the Charities Aid Foundation (CAF), UK consumers want businesses to be more open and transparent about their philanthropy.  See today’s Guardian article entitled “New Survey Shows FTSE 100 Companies Have Increased Charitable Giving.”  Over half of the 2,000 British people CAF interviewed commented that they would be more likely to purchase a product if part of its price was donated to charity.  In addition, those aged 18-24 increasingly express a desire to work for businesses that are ethical.  Job seekers within this age range see working for a company that allows one “to give back” to be a major selling point.  

        As a result, UK businesses seeking to have a social impact are taking on more sustainable approaches, are re-thinking their purpose, and are marketing their products in the context of how they help solve social problems.  Klara Kozlov, head of corporate clients at CAF, urges businesses to adopt a “framework for reporting their philanthropy activity and …. measur[ing] and report[ing] the impact of their giving.”  She emphasizes that the public reporting of social impact is essential.  

        The impact investing sector in the US serves as a relevant model for these businesses.  Like the nonprofit sector, the impact investing sector has social impact as goal, but it also has profit earning as an aim.  In other words, it is a growing sector for those consumers and investors who are increasingly making their choices based upon their “personal, social, and environmental values”, and thus demand that businesses have a double bottom line: profit and social impact. In sum, a double bottom line means that a business will both earn a profit for investors and produce a benefit to society or social impact.  (For more on impact investing, see “Impact Investing: The Power of Two Bottom Lines”).  Since impact investors also expect a financial return, the sector has had to bring a level of rigor commensurate with the financial markets to bear upon the measurement of both elements of their return. 

August 14, 2014 in In the News, International | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 13, 2014

DAF Millennials Get Charitable

        Earlier this week, I wrote about the need for donors to view their charitable giving as a form of investment. According to the results from a Vanguard Charitable study released earlier this month, Millennials are doing just that. See The NonProfit Times article "Millennials More Generous with Donor-Advised Funds."  Millennials want to track the results of their giving and be involved in implementation associated with their donations. They are frequently turning to donor-advised funds ("DAFs") in this endeavor, including Mark Zuckerberg and his wife. (If you are interested in the overall DAF debate, see the Forbes article from earlier this year).

        In “An Inside Look,” Vanguard Charitable looked at 15,330 donors over a 10-year period. These donors used Vanguard’s DAF to make their donations. Although Millennials comprised the smallest percentage of donors when compared to Baby Boomers and Traditionalists (those born before 1946), as a whole, they contributed more money on average. According to Vanguard Charitable, Millennials gave $9,065 compared to an average of $6,979 and $7,877 for Traditionalists and Baby Boomers, respectively.

        At the same time, Millennials report that they are unsure of how to give outside of using DAFs. Clearly, Millennials want their charitable dollars to end up with those charities that will put them to their most productive use. Although the chief philanthropic officer at Vanguard Charitable has recommended that they hold board positions as a way to achieve this result, I would argue that charities themselves should assume responsibility for communicating to donors what their “return” or “social impact” is for a given investment. Donors should not want to give a substantial amount to a charity or to charities without understanding what the resulting social impact is. Millennials are creating a culture in their giving that will demand more transparency and accountability and that has the ability to re-shape the future of the nonprofit sector.

Khrista Johnson

August 13, 2014 in In the News, Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 12, 2014

Stanford Study: Nonprofits Need More of a Say in Measuring Social Impact

        Nonprofit evaluation is a key component of establishing an efficient charitable market. Without a way to measure social impact, both nonprofits and donors remain unaware of whether investment is being put to its most productive use. (Social impact may be thought of as what the charity has accomplished with a donation). As Stephen Goldberg has noted in his book Billions of Drops in Millions of Buckets, one of the reasons inefficiency exists in the charitable market is because funders currently cannot differentiate between effective and ineffective charities. The Stanford Social Innovation Review recently examined the need for a shift in nonprofit evaluation and the discourse surrounding it in “Measuring Social Impact: Lost in Translation,” and the ideas expressed hold valuable insights for the sector.

        Most importantly, the authors contend that nonprofits need to set the agenda in terms of evaluation and should use a qualitative approach in addition to a quantitative one. They point out that if nonprofits do not shape the evaluation conversation, funders will do it for them. They note five specific items that nonprofits should “talk more about” in terms of evaluation. First, nonprofits should focus more on their purpose and their strategy for achieving it. As the authors advise, “[A]ll nonprofits should have a clearly defined theory for how they will create change that connects their strategies and programs to the results that they anticipate.” Second, nonprofits should spend more time discussing people. Funders often want nonprofit assessment to include quantitative assessments, e.g., the number of people indirectly affected. However, too much emphasis on quantitative analysis reduces a nonprofit’s impact to a series of numbers. The authors promote a more balanced approach that includes qualitative assessments as well: “Qualitative assessments that draw on conversations with people are often more consistent with how nonprofits operate, and they are also a methodologically valid form of evaluation.” Third, nonprofits would benefit from drawing attention to the big picture. In other words, evaluation should consider how a given nonprofit’s work fits within the collective transformation of an area. Fourth, nonprofits should not shy away from discussing their challenges. Their failures and lessons learned are beneficial in terms of collective learning. Accordingly, the authors urge nonprofits to highlight not only monitoring but also transparency as a goal in evaluation. Finally, nonprofits should encourage more learning. Currently, funders (who focus more on monitoring than learning) have a much louder voice in evaluation than beneficiaries and nonprofit workers who are directly involved and who may facilitate learning.

        In terms of the discourse surrounding nonprofit evaluation, the authors caution that business, managerial, and scientific language is drowning out the nonprofit voice. This underscores the need for nonprofits to take charge of shaping evaluation. Too often terms such as “investment,” “returns,” “output,” and “outcomes” are used to discuss social impact, without regard to the five other areas identified. The Stanford team’s study of 400 individuals and organizations in the nonprofit sector revealed that the vocabulary of nonprofit evaluation typically falls within 3 cultural domains: (1) managerial, (2) scientific, and (3) associational, with managerial terms dominating the discourse. All of these domains hold valuable insights for the nonprofit sector; however, nonprofits themselves should be the ones to shape their evaluation and the discourse surrounding it.  

Khrista Johnson

August 12, 2014 in In the News, Publications – Articles, Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Monday, August 11, 2014

Big Fish in an Inefficient Pond

        A recent opinion piece in The Chronicle of Philanthropy urged the media to stop making a big deal over big donors.  See "America's Press Needs to Stop Fawning Over Big Donors."  According to Eisenberg, the danger is that the media praises a giver as good based upon how much he/she has given rather than upon what impact his/her dollars have had.  The real danger is that the most urgent global problems of our times are not being addressed effectively despite the number of dollars donated annually.  There is adequate funding but inadequate progress.  The UN has stated, “Millions still live in extreme poverty, yet the world has enough money, resources, and technology to end poverty.” Donations of wealthy donors often end up in the hands of US and non-US charities, and no one is asking systematically what these charities are accomplishing.

        Earlier this summer, I had a conversation with Eric Thurman, CEO of Geneva Global, a firm that provides research and grant management for philanthropists internationally, about who should be considered the best givers.  He remarked that buying a lot of stock does not make one a great investor. If someone owns stock, they look to see how their stock is performing.  In the nonprofit world, often the givers who have contributed the largest amounts are the most celebrated regardless of the social impact achieved from their donations.  If donors treated their donations more like investments, progress could be made toward ameliorating some of the most pressing humanitarian and global problems of our times. (For more information on Thurman’s viewpoint, please see "Performance Philanthropy," Harv. Int’l Rev., Apr. 2006, at 18).

        A problem with the charitable market is that funding does not flow toward effective charities and away from ineffective charities.  In an efficient market, private sector investors use information available at the time of investment to receive returns; these returns generally do not exceed average market returns because the same information is available to all investors.  Succinctly stated, it is difficult for an investor to beat the market.  In the inefficient charitable market, the market is easily beaten; the donor simply gives to a charity that a reputable rating organization recommends. A donor will receive more measurable social impact for his/her buck in giving to a recommended charity versus a non-recommended one.  However, pervasive questions still linger.  How many donors are using a thorough rating organization?  Are the rating organizations asking charities the right questions?

        In a forthcoming series of articles, I have set forth the concept of an efficient charitable market or one where collective charitable investment ends up in the hands of charities that will put it to its most productive use.  One of the reasons inefficiency exists in the charitable market is because donors currently cannot easily differentiate between effective and ineffective charities. Granted, it is no easy task to make this distinction, but it is possible.  If this became a crucial question for charities and donors, perhaps the media would report on the good accomplished rather than on the number of dollars donated.

 

Khrista Johnson

August 11, 2014 in In the News, International | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 30, 2014

The National Taxpayer Advocate Isn't Happy with EO but the Form 1023 EZ Isn't the Answer

On July 16, the National Taxpayer Advocate released its mid-year report to Congress.   The IRS release is here and the report itself is here.

Given all that has occurred in the last year in EO, I suppose it is not a big surpise that the Taxpayer Advocate Service (TAS) has a lot to say about EO and not very much of it is good.   One of its areas of focus is the exempt status process, with the relevant part of the report entitled, "Despite Improvements, TAS Remains Concerned About IRS Treatement of Taxpayers Applying for Exempt Status."

Rather than focus on the Section 501(c)(4) and political activities issues, which makes up much of this section of the report, I wanted to focus on the TAS' comments on the new Form 1023-EZ.  One would have thought that the TAS, which was been extraordinarly critical of exempt status wait times (and rightfully so), would have welcomed the Form 1023-EZ.   In fact, the report notes that the TAS suggested the creation of a Form 1023-EZ as part of its 2011 report to Congress.   So you'd think that the new form (available here) would be good news.

 But not so much, apparently:

The National Taxpayer Advocate continues to be deeply concerned about the IRS' abdication of its responsibility to determine whether an organization is organized and operated for an exempt purpose and not mrerely accept an organization's statement to that effect.

Back in practice, the issue often arose whether to attach a certain document or not to the Form 1023.   My response, with which many may disagree, was usually to attach more and not less - assuming, of course, there was really no issue to be raised by the additional documentation.   I always liked the security of being able to say that we sent everything in, the IRS vetted it (or at least had the opportunity to vet it), and we could rely on having provided a complete application.   Clearly, an organization submitting the 1023-EZ can't have that limited comfort, illusory as it may have been, as it really submits almost nothing as part of the application.

The TAS' primary concern appears to be with the IRS' intention to police determinations made through the 1023-EZ process with a follow-up audit.   Given the state of the IRS' budget, I'm not really worried about those audits actually happening.   Personally, I'm more worried for donors, who often seem to use the "Section 501(c)(3)" label as a filter for fraud protection.   That probably was never truly accurate, but it's even less accurate now.

I'd love to hear thoughts....

EWW 

 

 

 

July 30, 2014 in Federal – Executive, In the News | Permalink | Comments (1) | TrackBack (0)

Monday, July 28, 2014

Private Foundation investments have almost erased the impact of 2008

The 2013 Common Fund/Council on Foundation study of private foundation investments is available here, and it's generally pretty good news.  

According to a summary article at Chronicle of Philanthropy, private foundation investments grew on average 15.6% in 2013.    The five year annual return, including 2013, is now at 12%; compare that to last year's five year annual return, which was only 1.7%.    The article notes that the disasterous retuns of 2008 have now rolled out of the 5 year running average.  In additional good news, foundation debt is down and spending is up.  

The bad news - nonprofit grant recipientss are still in a rough state, which is part of the reason why foundation giving is up.  In addition, the report warns of increasing volatility and, therefore, likely lower returns in the coming year.

EWW

 

July 28, 2014 in Current Affairs, In the News | Permalink | Comments (0) | TrackBack (0)

Friday, July 25, 2014

$650 Million Gift to Study Genetics of Psychiatric Disorders

 

The Chronicle of Philanthropy is commenting on billionaire businessman Ted Stanley's recent $650-million pledge to the Broad Institute to study the genetics of psychiatric disorders.  The pledge is one of the largest individual donations ever to medical research. 

The pledge comes at a very opportune moment.  According to the Chronicle,

About one in four adults suffers from a mental disorder, and one in 17 people live with a serious mental illness like major depression, bipolar disorder, or schizophrenia, according to the National Institute on Mental Health. The World Health Organization estimates 450 million people worldwide suffer from such diseases.

One would think that such staggering statistics would lead state and national leaders to allocate more funds to addressing the needs of the mentally ill.  Not so, says the Chronicle.  Instead, 

. . . from 2009 to 2011, states cut more than $1.8-billion from their budgets for services helping children and adults who have mental illnesses, states the National Alliance on Mental Illness. Support for scientific research has dwindled, and what remains is difficult to obtain because of increased competition for scarce dollars.

This is a sad situation.  Like the Chronicle, I hope Mr. Stanley's gift will "spark a flurry of additional donations to mental-health causes."

VEJ

 

July 25, 2014 in Current Affairs, In the News | Permalink | Comments (1) | TrackBack (0)

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

July 23, 2014 in Current Affairs, In the News, Other | Permalink | Comments (0) | TrackBack (0)

School of Philanthropy Dean Search Down to Two

The Nonprofit Times is reporting that the search for someone to fill the shoes of retiring founding dean Eugene R. Tempel at the Indiana University Lilly Family School of Philanthropy has been narrowed down to two candidates. 

The Times reports that while the university will only confirm that the search is ongoing and the intention is to have a new dean by January 1, 2015, the Times has information that only two candidates -- neither of whom is from Indiana University -- remain.

The Times continues:

Multiple sources have told The NonProfit Times that the process has not been as smooth as was expected. In fact, there has been some consideration as to under what terms Tempel might stay on for up to one more year if the new dean is not selected soon, according to multiple sources within the university and search process.

The search committee presented candidates to Charles R. Bantz, Ph.D., chancellor of the Indianapolis campus, known as IPUI since it is shared with Purdue University. There were three finalists but one of them, from a university in California, has withdrawn his application, according to sources.

Andrew R. Klein, J.D., chair of the IU Lilly Family School of Philanthropy selection committee and dean of the IU Robert H. McKinney School of Law, disputed the idea that the search has not gone as smoothly as hoped. He said the plan was to present a pool of candidates to the administration by mid-summer and that has happened. He said eight candidates were reduced to “those who came back to campus.”

He declined to confirm the number of candidates who made campus visits and the number of candidates still in the running for the coveted position in nonprofit academia. He cited a confidentiality pledge to the candidates who are still employed. “Chancellor Bantz is in consultation with President (Michael A.) McRobbie about the search,” he said. “The appointment of any dean is ultimately made by the Board of Trustees of Indiana University,” Klein said. “I am not involved in the conversations at this point, but I am certain that Chancellor Bantz is consulting with President McRobbie to make sure the administration presents a candidate to the board in which they both have confidence.”

The Lilly Family School evolved from the internationally known Center on Philanthropy of the IU-Purdue University campus in Indianapolis, Indiana.  The school encompasses and expands all of the previous academic degree, research and training programs at Indiana University, including The Fund Raising School, the Lake Institute on Faith & Giving, the Women’s Philanthropy Institute and International Programs.

VEJ

 

July 23, 2014 in Current Affairs, In the News, Other | Permalink | Comments (0) | TrackBack (0)

Monday, July 21, 2014

Charities that Support People with Mental Illness Win Hilton Prize

This morning I came across this touching story published in Friday's Chronicle of Philanthropy.  The story begins by stating that the biggest danger for people living with severe mental illnesses is not navigating the health-care system or finding a good therapist, but living in isolation.  Because people with mental illnesses no longer spend much time in hospitals, they end up living alone.  According to Kenneth Dudek, president of Fountain House, a New York charity that helps mentally ill people live independently, living in isolation makes the illness worse and the patients do not get the help they need.

For its efforts to provide a sense of community to the mentally ill, Fountain House and its sister organization, Clubhouse International, have won the Conrad N. Hilton Humnanitarian Prize, a $1.5 million award that recognizes an organization that works to alleviate human suffering. 

This is the first time the prize has been awarded to a mental-health organization.  According to Hawley Hilton McAuliffe, a member of the prize's jury and granddaughter of Conrad Hilton, the organizations were chosen because mental health has not received much attention despite the prevalence of the problem.  Said McAuliffe: "It's a humanitarian crisis at this point, especially here in the United States.  It's one area that has not been addressed by many organizations."

McAuliffe revealed that  as the prize jury deliberated about this year's award, it considered Fountain House's success at giving mentally ill people opportunities to find fellowship.  It also considered the recent spate of mass shootings by mentally ill individuals, in particular the spree committed by 22-year-old Elliott Rodger, who killed six people and injured 13 others near the campus of the University of California at Santa Barbara in  May.  The Chornicle quotes McAuliffe as saying, "Here was this isolated individual who had no sense of community.  Wouldn't Fountain House have been a good resource for him?" 

The truth is, many mentally ill people are in need of similar resources.  The Chronicle states it well:

In the United States alone, 13.6 million people live with a serious mental illness like major depression, bipolar disorder, or schizophrenia, according to the National Alliance on Mental Illness. And the World Health Organization estimates 450 million people worldwide suffer from such illnesses. Three-quarters of chronic mental illnesses begin by the age of 24, but people sometimes wait decades to seek treatment. Most alarming, nearly half of all homeless adults in America has a severe mental illness.

That is a sobering statistic.  I applaud Fountain House and Clubhouse International for the assistance they give to some of the suffering people.

VEJ

 

July 21, 2014 in Current Affairs, In the News | Permalink | Comments (0) | TrackBack (0)

Saturday, July 5, 2014

What Does the Hobby Lobby Decision Mean for Religious Nonprofits?

ImagesThere has been an enormous amount of academic, other commentator, and media coverage of the Supreme Court's recent decision in Burwell v. Hobby Lobby Stores.  Included in the discussion has been much speculation about how the decision, involving a closely-held, family-owned, for-profit corporation, impacts ongoing litigation involving religious nonprofit corporations challenging whether the limited accommodation provided for them under the same rule (requiring  coverage of contraceptive services) is sufficient under the federal Religious Freedom Restoration Act.  Language in the majority opinion (slip op. p. 44) and in Justice Kennedy's concurring opinion (slip op. p. 3) seems to suggest although not hold that it is, but on Thursday the Court issued an injunction barring the federal government from requiring Wheaton College to use the form prescribed by the government to implement the accommodation, pending resolution of the College's appeal.  The order generated a strong dissent from Justice Sotomayor (joined by Justice Ginsburg and Justice Kagan), who concluded the College had not stated a viable claim under RFRA.  The dissent is unusual, especially given that the order on its face makes it clear that it "should not be construed as an expression of the Court's views on the merits."

My understanding of what is going on here is as follows.  First, many religious nonprofits (my employer, the University of Notre Dame, included) are not flatly exempted from the requirement to cover contraceptive services.  The existing flat exemption is limited to churches and, using terms familiar to nonprofit scholars and practiti0ners and indeed defined by reference to Internal Revenue Code § 6033, conventions or associations of churches, integrated auxiliaries of churches, and the exclusively religious activities of any religious order.  Other religious nonprofits instead are accommodated by being given the opportunity to complete the above-mentioned form stating their objection to providing some or all of the required coverage.  The effect of this form differs depending on whether the nonprofit otherwise would provide such coverage through a third-party insurer or through a third-party administrator because the nonprofit is self-insured.

The University of Notre Dame provides a good example of both of these situations and how they differ, particularly from the perspective of the nonprofit (and indeed Notre Dame is challenging the sufficiency of the accommodation in court).  These facts are drawn from the Seventh Circuit's recent opinion adverse to Notre Dame, although it should be noted that many similarly situated religious nonprofits have won similar cases in the lower federal courts (pre-Hobby Lobby).  For those students at Notre Dame who need health insurance, Notre Dame has a contract permitting students to purchase such insurance from an insurance company, Aetna.  The effect of Notre Dame completing the above form (EBSA Form 700) is to tell Aetna Notre Dame (and its students) will not pay for such coverage, which effectively requires Aetna to do so because under the Affordable Care Act health insurance companies have to provide such coverage.  So by completing the form, Notre Dame effectively shifts the cost of such coverage from itself (and its students) to Aetna.

For faculty and staff at Notre Dame who need health insurance, the situation is subtlely different.  Notre Dame is self-insured, which means it pays for all covered health insurance (subject to a modest employee up-front contribution and co-pays) although it hires a third-party to administer this coverage (Meritain).   The difference here is that Meritian is not a health insurer, so it is not obligated to provide coverage for contraceptive services even if Notre Dame refuses to do so absent an additional legal step.  The additional legal step providing by the current accommodation is that Notre Dame's completion of the EBSA Form 700 triggers a new requirement that Meritain provide this coverage, accompanied by a right for Meritain to obtain reimbursement of at least 110 percent of its costs of doing so from the federal government.  My understanding is that under Notre Dame's understanding of the theological concept of cooperating with evil, since the effect of Notre Dame completing the form is to trigger a new requirement that Meritain provide contraceptive coverage (albeit ultimatley paid for by the federal government), being required to complete the form is viewed by Notre Dame as a greater  burden on its exercise of religion that exists when the coverage is provided by a third-party health insurer (although I assume Notre Dame is continuing to argue that the accommodation in that situation is also not sufficient under RFRA).  As the Supreme Court majority noted in the Hobby Lobby decision (slip op. pp. 36-38), whether a particular act is sufficiently connected to the ultimate evil objected to make that act itself morally objectionable is itself a religious belief and so subject only to test of sincerity in the courts (which test I assume Notre Dame would have no trouble passing).

Bottom line, the Hobby Lobby decision does not clearly resolve the cases involving religious nopnrofits that are not flatly exempt from the contraceptives services coverage requirement but instead accommodated as described above.  Furthermore, those religious noprofits that provide health coverage through self-insurance as opposed to a through a third-party insurer have a subtely stronger claim  that the existing accommodation is not sufficient under RFRA.  Whether the lower courts, and ultimatley the Supreme Court, believe this difference is determinative remains to be seen.

Lloyd Mayer

July 5, 2014 in Federal – Legislative, In the News | Permalink | Comments (0) | TrackBack (0)

Thursday, July 3, 2014

Silencing the Nonprofit Sector in Algeria, Azerbaijan, Ecuador, Indonesia - and Canada and the UK

DownloadThird Sector reports that the Charities Aid Foundation has issued a report criticizing several countries for introducing legislation or taking other steps aimed at preventing nonprofits from criticizing their governments.  Titled Future World Giving: Enabling an Independent Not-for-profit Sector, the report highlights six countries that have introduced such legislation and several others where government critics, including the leaders and members of NGOs, face prosecution and other government persecution.  The report also highlights how governments often use their funding of NGOs to impose conditions on those groups that effectively silence them, an issue that recently reached the Supreme Court here in the United States.

Lloyd Mayer

July 3, 2014 in In the News, International, Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Philanthropy Classes Highlight Issues for Donors - Including the Funder of the Class

Images (1)The NY Times Dealbook reports that Geoffrey P. Raynor, founder of the hedge fund Q Investments, has funded classes on philanthropy at several prominent universities, including Harard, Northwestern, Princeton, Stanford, and Yale.  The classes give students real world experience in giving money away (tens of thousands of dollars for each group of enrolled students).  They also give students an opportunity to question Mr. Raynor, who requires that he be given two hours to speak to the students personally.  According to the article, some of those question and answer sessions have become a bit testy, with students challenging Mr. Raynor's approach to philanthropy and questioning how he made his money.  The one lesson that all of the students seem to take away, however, is that giving away money well is harder than it first appears.

Lloyd Mayer

July 3, 2014 in In the News | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 2, 2014

Complaints Against Charity Regulator On the Rise - in the UK

UntitledIn an interesting example of government transparency, Third Sector reports that the Charity Commission for England and Wales has issued its Annual Complaints Review showing that complaints made against the Commission increased in 2013/14 over a third from the previous year and that the proportion of complaints fully or partially upheld almost doubled (from 19 percent to 34 percent).  More specifically, the Commission received 152 "Stage 1" complaints, with about a third of the complaints moving to Stage 2 consideration (because the customer was dissatisfied after the Stage 1 review).  To put the number of complaints in context, the Commission during the same period received 6,681 applications for registration as a charity (or about a tenth of the § 501(c)(3) applications the IRS receives annually).  The most common issue raised (and some complaints raised multiple issues) was insufficient regulatory intervention by the Commission.

While I realize that the National Taxpayer Advocate may to some extent gather similar information with respect to the IRS, it is telling that when the Advocate's office reviewed the exempt organization application process last summer it began by stating that "[i]In addressing the exempt organization (EO) issues, the Advocate’s office does not have investigative authority and did not seek to duplicate other ongoing investigations."  The existence of this type of detailed information in the UK may be another argument for a national exempt organizations regulator that is not part of the IRS, as Marc Owens has proposed.

Lloyd Mayer 

July 2, 2014 in In the News, International | Permalink | Comments (0) | TrackBack (0)