Obama’s Call for Service, a Spur to Giving Sector

The giving sector got a big push from President Obama in his inauguration speech. It also got what should be a big wake-up call.

So while nonprofits and foundations may be riding high, anticipating a surge in giving championed by our new president, they also have a lot of work to do to be better stewards of the time, know-how and money Americans give.

In his speech, Obama called for a “new era of responsibility” and the “recognition on the part of every American” of the shared duties of “giving our all to a difficult task.”

But he also cast part of the blame for the meltdown in our economy to “our collective failure to make hard choices and prepare the nation for a new age.”

While it plays an irreplaceable role in addressing urgent social problems and their root causes, the giving sector faces serious operating challenges it must address to be effective at fixing those social problems.

Nonprofits are expected to do too much with too little, and too few are willing or able to invest in building their internal operations or to raise their voice to speak out and work for social change.

And too many nonprofits still act as if their cause entitles them to support without having to adapt their fundraising to better engage and serve the givers they depend on.

Big nonprofits and foundations also are moaning, respectively, about the difficult of raising money and the loss in the value of their assets because of the decline in the economy.

But instead of getting their own houses in order, they and the trade groups that represent them are tripping over one another in a rush to grab a piece of the government’s massive financial bailout package.

Foundations are flush with donated wealth dedicated to charitable purposes, flush even with the decline in the value of their assets because of the sinking capital markets.

Their job is to serve as vehicles for investing assets givers have dedicated to charitable causes in return for generous tax breaks the givers enjoy.

Yet foundations treat those assets as a source of private wealth and influence they make it their job to hoard and grow.

Far too few foundations are willing to give more than the five percent of assets they are required to pay out each year in grants and overhead.

And far too few are willing to use their voice or their shareholder role to try to shape public policies and the business strategies of companies in which they invest.

In a regulatory system with few rules and weak teeth, foundations operate pretty much as they wish and are accountable to no one but their own boards, boards that typically sleep at the wheel.

That lack of accountability can result in serious damage: Foundations were among the charitable investors that lost millions of dollars in the Madoff investment scandal, losses that might have been avoided had foundations been subject to greater oversight and required to disclose more about their operations and investment practices.

The economic crisis, Obama said in his speech, “has reminded us that without a watchful eye, the market can spin out of control” and that “a nation cannot prosper long when it favors only the prosperous.”

The giving sector does not operate under a “watchful eye,” and regulation of the sector favors big foundations and their wealthy donors, groups that have had the clout, and have exercised it, to successfully fight efforts to tighten regulation of them.

The giving sector can make a huge difference in the effort to fix America’s social problems.

But to truly become an effective vehicle for social change, the sector first must take a hard look at how it operates and fix what is wrong.

Nonprofits need to strengthen their operations, build their capacity so they can secure and absorb more giving, and raise their voice on important policy issues.

Foundations need to pay out more, give more to support nonprofit operations, be more open about what they do, and speak up on social change.

And government needs to do a better job policing the giving sector and making sure it operates fairly and in the light of day.

Rooted in values he called the “quiet force of progress,” the giving sector can continue to serve effectively if it is willing to be brutally honest about itself and work harder and smarter to engage and justify the “faith and determination of the American people” on which Obama said the nation relies.

Todd Cohen, a veteran news reporter and editor, is editor and publisher of Philanthropy Journal, an online newspaper published by the A.J. Fletcher Foundation in Raleigh, N.C. Cohen has taught nonprofit reporting and media relations at the University of North Carolina at Chapel Hill and at Duke University, and regularly speaks on the topics of nonprofit media relations and trends in the charitable world.

Read more stories by Todd Cohen.