Some years ago The Economist published an impish feature in which the editors rated the world's best intellectual watering holes as if they were resorts. They focused on meetings at such places as Davos, in Switzerland, and Ditchley Park, in England, and on conferences held under the auspices of such groups as the Aspen Institute (Colorado) and Pugwash (various locales). Little symbols indicated the quality of the accommodations and the company. "Ditchley's charm is that it has managed to preserve the trappings of a great British country house," the editors observed. "Loll late on a Saturday night with port and cigar in one of the fine drawing rooms at Ditchley Park, half close the eyes, and you are Churchill during a wartime weekend, after a dinner spent mulling over the future of the world." In all, the feature was a good-natured send-up of the privileges enjoyed by cosmopolitan thought-leaders under the auspices of the gilded nonprofit sector of the Western world—life on the gravy jet.
Well, "good-natured" is not entirely correct: there was an implicit edge to the commentary. The nonprofit realm as a whole—Exemptia, as this fabled place might be called, encompassing think tanks and academic institutions, churches and foundations—becomes larger with every year. Throughout the boom of the 1990s money poured at record levels into the coffers of philanthropic foundations in particular. Thousands of new foundations were established, bringing the number in the United States alone to upwards of 60,000, and total assets to more than $400 billion. Foundations have become "so much more significant so rapidly," Nicholas Lemann observed in these pages in 1997, that oversight of their activities, never robust, cannot keep up. Last year the Internal Revenue Service was able to conduct reviews of scarcely more than a hundred of those 60,000 foundations. Most do not release detailed reports on their activities and finances. It was just a matter of time before critics started to wonder if Exemptia was exempt not only from taxes but from regulation of any kind.
Now that time appears to have come. The Boston Globe, The Washington Post, The New York Times, and other newspapers have been looking aggressively into conflicts of interest and the generous salaries paid to executives and trustees of some foundations and charities. Item: Earlier this year three directors of the Grand Marnier Foundation, in New Jersey, resigned and paid $250,000 apiece in fines to settle a lawsuit alleging that they had enriched themselves at the foundation's expense. Item: In Massachusetts a trustee of a family foundation reportedly increased his compensation in order to pay for a daughter's $200,000 wedding. Item: In Washington, D.C., an audit of the local United Way revealed that the former chief executive had received some $1.5 million in "apparently improper or questionable payments."
On Capitol Hill a measure was introduced last year that would force foundations to pay out more of their endowments than ever before for grants and program activities. Currently foundations must pay out five percent every year, a sum that may include administrative expenses. Under the new legislation the five percent would have to be over and above anything spent on administration—a stipulation that could well see many foundations eventually drawing down their endowments to the point of evaporation. Supporters of the bill declare that at a time when the government can scarcely meet its obligations, the nonprofit sector must step up as never before. One prominent critic of foundations, Georgetown University's Pablo Eisenberg, told The New York Times, "Foundations are acting like investment bankers and not grant makers. They have no sense of responsibility to communities at a time when government funding and private funding are being cut."
Meanwhile, attacks on the foundation world for reasons of class or ideology are mounting. The Wall Street Journal recently inveighed against the Pew Charitable Trusts for departing from the very conservative social instincts of the donors (the children of an oil baron) who founded the institution half a century ago. "Looks to us as though someone on the Senate Finance or House Government Reform Committees hasn't been minding the store," the Journal concluded. The American Enterprise Institute, a conservative think tank, helps maintain a list of the most activist nonprofit groups in the United States and worldwide (it's on the Web at www.ngowatch.org) and monitors what these groups are up to. A recent conference on the subject at AEI (itself a nonprofit group) was titled "We're Not from the Government, but We're Here to Help You: ... The Growing Power of an Unelected Few." The chair of the National Committee for Responsive Philanthropy, Teresa Odendahl, recently told The Boston Globe that "the giving of the wealthy perpetuates the status quo and actually serves their class interest."