Not long ago, I was shocked to hear that, in a public meeting, a former community development colleague of mine had launched into a tirade against the dangers of increased regulation of the nonprofit sector. Like warning teenage sleepers about Freddy Krueger, she cited the Sarbanes-Oxley Act as an example of the hazards of regulation and warned of the dire consequences that might cascade from the Senate Finance Committee’s investigations and hearings in 2004.
Maybe I shouldn’t have been all that surprised by her anti-regulatory vehemence. During my years in the community development world, I was frequently stunned to hear colleagues quietly advocate exempting nonprofits from adhering to the tenant protection laws that apply to for-profit property owners or from paying prevailing wages on construction projects. I recall senior people from a national government-sponsored enterprise actually whispering to my organization’s staff that we should be able to make housing projects work by evicting tenants. Community activists, they said, wouldn’t go against nonprofit developers with the same force as they would against for-profit builders. After recovering from shock, my colleagues admirably reacted as they should: they shot the ploy down.
After working in the guts of the nonprofit sector, I’m still surprised to hear foundations argue for their own exemption from regulation—not just from more or enhanced regulation, but from any regulation. In a conference call a few weeks ago, I heard a major foundation leader contend—without objection, I might add—that “all the challenges calling for regulation are met by negative reactions because [foundations are] an independent sector.” (Note: just so I don’t get angry missives from 18th Street in Washington, the speaker was not from Independent Sector [IS] and was not speaking on behalf of IS.)
But the anti-regulatory counterattack is on, with corporate leaders taking aim at Sarbanes-Oxley. Within the nonprofit sector, there is often a visceral response to regulation. At Independent Sector, for example, the drumbeat is for self-regulation, though the results of a self-regulation task force convened under the aegis of IS’s Panel on the Nonprofit Sector read more like principles of self-governance than the architecture of a self-regulatory system. (I’ve written about the lessons learned from self-regulation in other sectors and what the U.S. nonprofit/foundation sector might apply in its efforts. I suggested that we think of self-regulation as part of a toolbox of responses to ethics and accountability challenges. See “The Accountability Toolbox” in the Spring 2005 issue of Responsive Philanthropy, an updated version of which is a chapter in Building Solid Foundations: New Approaches to Substantive Philanthropic Accountability, available from the NCRP.
It isn’t hard to find conservative foundations criticizing Sarbanes-Oxley as an inappropriate and harmful intrusion into the operations of the market. But mainstream foundations? It shouldn’t be all that surprising, actually. Foundation wealth typically comes directly or indirectly from corporate wealth, so it’s not uncommon to find foundations resistant not only to regulation that applies to them but also to regulation that applies to their corporate benefactors. In one case, the intersection between personal, corporate, and philanthropic aspects of one large foundations’s grantmaking concerning Sarbanes-Oxley regulation raises some interesting questions about whose interests are really being served.That’s the story in this issue of the Cohen Report, entitled Starr Crossed: Foundation Dollars Used to Further Corporate Interests , which makes some observations about Sarbanes-Oxley-related grantmaking of the New York City-based Starr Foundation.
The conflict between the Starr Foundation’s longtime chair, Hank Greenberg, New York State’s Eliot Spitzer (when he was attorney general), and the Securities & Exchange Commission over Sarbanes-Oxley-type regulation and enforcement is a story of the real-life complexities of many major foundations. We’ll continue to keep an eye out for these stories and more—if you help point us in the right directions.