Spring 1998

A Matter of Principles
Minnesota Grantmakers Take a Hard Look at Ethics in Their Work

The board members of Ripley Memorial Foundation in Minneapolis were in for a surprise when they sat down last year to take up the matter of subscribing to the Principles for Minnesota Grantmakers — a new "code of ethics" for the state's foundations and corporate givers.

"At first we thought we could just read through the principles quickly because we all agreed with them, but once we started looking closely at each one it was obvious that there were lots of loopholes," says Suzanne Payne, immediate past-president of Ripley, a small, volunteer-run private foundation whose grants focus on reducing adolescent pregnancy in Minnesota. "We've always considered ourselves to be a well-run organization," Payne adds, "but we realized that a lot of how we functioned was by unstated principles — and that's not the best way to operate. It left so much open to individual interpretation."

Ripley's board responded by putting in writing some clear definitions of the responsibilities and goals for each of its three standing committees, the duties and obligations for each officer, and the responsibilities and expectations of each board member. "The principles made us take a very good look at how we were functioning," says Payne. "They pushed us to a new level."

Ripley is one of many Minnesota grantmakers that have spent the past year determining how to best carry out responsible, ethical grantmaking work as defined by the principles. The eight principles were developed by a task force of members of the Minnesota Council on Foundations, and approved by the Council's board in June 1996 - making Minnesota the first region in the nation to take such action. The task force also developed four different sets of model practices to support the principles, geared to the four main types of grantmaking organizations.

Almost half of the Council's membership has formally subscribed to the principles, and others are expected to follow suit within the next year. Signing on to the principles has prompted many grantmakers to reexamine how they do their work, raising questions that sometimes have easy answers and sometimes do not.

Revising the Norms

Taking an honest assessment of one's ethical practices and making any necessary adjustments can be particularly difficult for older foundations such as Ripley, where unstated norms can become deeply ingrained, while just the opposite can be the case for younger grantmaking organizations. At the five-year-old Catholic Community Foundation, which has few discretionary grantmaking dollars right now, executive director Jim Mullin views the principles as primarily influencing his foundation's future practices.

Although the Catholic Community Foundation made grants of $3.2 million in the last six months of 1997, the dollars were primarily from dedicated endowments and donor-advised funds. Since Mullin and his staff are not yet seriously involved in full-blown grantmaking activity, he says they had not given much thought to the importance of respecting the confidentiality of applicants, grantees and donors - until they read Principle Four. "This principle has heightened our attention and commitment to the issue, so that once we start responding to grant requests we'll do it right the first time," he says.

For some established grantmakers, subscribing to the principles has not brought about any major organizational changes, but instead has served to reaffirm that they're on the right track in terms of ethics. This was the case at the Honeywell Foundation, in part because ethical codes of conduct are a norm for corporations, according to executive director Andre Lewis. "A lot of this is already part of the corporate culture," he says.

At the Mardag Foundation, a $50-million family foundation in St. Paul, becoming more open, accessible and diverse has been one of its goals for the past ten years, according to board president Gayle Ober. "So when it came to formally subscribing to the principles it was easy," she says. "I think that for any foundation this is just good business practice."

Many larger foundations have addressed ethical issues years ago simply because they've been forced to by the large volumes of grant requests they've received, says Michael O'Keefe, executive vice president of The McKnight Foundation, Minnesota's largest grantmaker, which awarded about $76 million in 1997. "But I think there's still a huge value in making the principles explicit, and generating a regular discussion among staff and board members," he says.

McKnight's employees have engaged in extensive discussions on the principles, to challenge themselves on whether they're doing as good a job as possible. One result of those discussions was the foundation's decision to try to better explain why an application has been denied, in order to respond more clearly and fairly to requests (Principle Two). "The principles force you to make those decisions," says O'Keefe. "What you decide to do isn't as important as the fact that you've thought through how you will behave."

Conflict of Interest

One change that McKnight and many other grantmakers have made in response to the principles is to develop or enhance their conflict of interest policies (Principle Seven). While such policies vary greatly from organization to organization, their common goal is to spell out what would be considered conflicts of interest for staff and trustees, and to describe how they will be handled. A typical conflict of interest policy would require, for example, that trustees disclose their relationship to any nonprofit being considered for a grant, and then refrain from voting on the issue or participating in the discussion other than to provide factual information about the applicant.

Although this has long been a common grantmaking practice, many grantmakers were surprised to discover during the process of subscribing to the principles that they had no formal policy in place. "We've always had this understanding that you would raise your hand if you had a conflict, but it was never a policy that was written down," says Ripley's Payne. "It's just something we never thought about before."

The McKnight Foundation refined its conflict of interest policy in direct response to its principles discussions, in part to better define its policy on staff and board members accepting gifts. "It had never really been an issue," says O'Keefe, "but we needed to sit down and imagine the scenarios that could happen."

The principles prompted the Honeywell Foundation to have some discussions on how its conflict of interest policy related to one of the unique aspects of corporate grantmaking: employee grantmaking committees. While it was clear that the policy would apply to the foundation's board and staff, should it also apply to Honeywell's many small, volunteer employee giving programs around the country? "After some deliberations, we determined that if we were to fully comply with the true spirit of the principle, the policy should apply to everyone," says Lewis. All employee committees are now routinely educated on the policy.

What Is "Prompt"?

Another principle that seems to generate much discussion among grantmakers is Principle Two, which among other things commits them to respond promptly to requests for information and meetings. Timeliness can also affect how well a grantmaker is meeting Principle One: dealing respectfully with applicants, grantees and others seeking information. Most grantmakers clearly want to respond to requests as promptly as possible, but often find themselves running up against the limitations of their structure or resources.

According to Honeywell's Lewis, larger corporate grantmakers can sometimes find it difficult to respond promptly to requests due to the frenzied, jam-packed schedules of the corporate executives on their boards. "You're asking to get on their schedules when they're busy trying to increase profits for the corporation," he says. "That makes it very difficult to schedule their meetings, so it stretches out the timing."

Timeliness is also a concern for the unstaffed Ripley Memorial Foundation. Since the foundation has no office, and relies on mail being forwarded from its financial managers, several weeks may go by before it can respond to requests. "Sometimes the delay of a week or two sends the wrong message to those who have contacted us," says Payne. "That is troublesome, and I'm not sure how we're going to resolve it."

For O'Keefe, the issue of timeliness isn't so much about how long you take to respond to requests, but whether or not you let applicants and others know how long they can expect to wait. If a grantmaker tells applicants that they'll hear back in six weeks, then they likely won't get worried when five weeks go by without a word. But if nothing is said about when they'll hear back, two weeks might seem too long.

"What drives you mad as an applicant is if you don't know when you're going to hear, if you don't hear for a long time, or if you hear conflicting signals and they keep changing. That is total disrespect for the applicant," says O'Keefe. "Respect isn't a response in two weeks versus four weeks. Respect consists of making your policies and commitments clear, and then following through on them."

Addressing Diversity

Perhaps the principle that generates the most discussion is Principle Six, which addresses the issue of foundations and corporate giving programs reflecting the cultural diversity of their communities in their grantmaking and in the membership of their boards, staffs or advisors, within the limits of their charters.

For many foundations, diversity on their boards is one of the most difficult issues to address. Since many corporate foundation boards draw their members from the company's executive ranks, for example, they are often quite limited as to what they can do on their own to diversify. And diversifying a board can be virtually impossible for most private family foundations, where board membership is based on blood ties.

The board of the Jay and Rose Phillips Family Foundation is comprised entirely of family members, and the Phillips family plans to keep it that way. "One of the concerns we had was, if we signed the principles would we run the risk of criticism from the community because we've committed to being diverse and we're not," says Pat Cummings, the foundation's executive director.

That concern prompted the foundation to prepare a written statement, available to the public, describing its interpretation of Principle Six given the constraints in which it operates. The statement includes, among other things, the foundation's commitment to identify a diverse pool of applicants for all future staff openings, and to solicit bids from minority vendors whenever possible.

"There are all kinds of ways that you can be diverse other than through your boards," says Ober of the Mardag Foundation. "You can become more diverse, for example, by simply opening up your grantmaking process to accept proposals, rather than always giving to a predetermined group of nonprofits."

Community foundations are often out in front of other grantmakers in addressing cultural diversity in their organizations, at least in part because their missions are based on being inclusive of the entire community they serve. The need to increase cultural diversity on community foundation boards is often more clear-cut than for private foundations, for example, since community foundation boards typically have rotating terms and draw their members from the community. "Dealing with diversity on the board may be different for us than for private foundations because of the nature of our organization, but I don't think that means it's any easier," says John Couchman, vice president grants and programs for The Saint Paul Foundation, which in recent years has undertaken an aggressive effort to diversify its grantmaking and organizational structure (see side story below).

An Ongoing Process

Many grantmakers point out that the act of signing on to the principles represents not an end but a beginning, with the principles becoming an integral part of their ongoing planning and decision-making processes. The Honeywell Foundation, for example, recently considered installing an automated phone system to handle applicants' requests for guidelines and grant forms, but quashed the idea after deciding that having a live person answer its calls was more compatible with Principle One: dealing respectfully with applicants and grantees.

At The McKnight Foundation, O'Keefe plans to make discussions of the principles a regular part of the organization's work. "I think there's an extraordinary value in reflecting on these issues periodically," he says. "Foundations frankly have to guard all the time against jerking people around, because it's so easy to slip into thinking, 'Oh those folks can wait until next week, no big deal.' Well, what you mean is that it's no big deal for you, but it likely is a big deal for them."

And what should nonprofits do if they feels a grantmaker isn't living up to the principles it professes to uphold? Some grantmakers say they'd appreciate hearing about it. "These are voluntary behaviors, and the Council's principles task force concluded that there's no way to enforce them other than through the social contract between the applicant and the funder," says O'Keefe. "I'd be delighted to have people giving us feedback."

Cummings agrees that this would be the ideal situation but doubts it will ever happen, given the imbalance of power that many nonprofits believe is inherent in the grantmaker-grantseeker relationship. Instead, she believes it is up to grantmakers themselves to hold each other accountable. "This is our stuff and we need to pay attention to it," she says.

And if grantmakers don't pay attention to it, Ober points out that the government could always decide to come in and do it for them - as it did in 1969. "Once you put your money into a foundation, it is the public's money by virtue of the tax opportunity you've been given," she says. "And the government can take it away from you if it doesn't think you're doing your job properly."

Although the Principles for Minnesota Grantmakers are a fairly new concept today, in ten years' time Cummings believes they will probably be viewed as just a routine part of grantmaking work. "There is a set of expectations about foundation behavior that is getting more clear," she says. "If the founders of foundations fully understand that when they set up a foundation they have a public responsibility, then the fact that there are principles which are part of that responsibility seems to just make sense."

Side Story
Principle Six: How One Foundation Is Addressing Diversity

About eight years ago, The Saint Paul Foundation took a look at its board, staff and grantmaking and determined that the organization did not reflect the cultural diversity of the community it was chartered to represent. The foundation responded by initiating a broad-based effort to make some improvements.

The foundation started by scrapping its system of selecting board members based on the nominations of "appointing authorities," primarily elected officials and other mainstream community leaders. Although the "appointing authorities" structure has been a common one for community foundations, "it didn't work very well for diversifying a board," says John Couchman, The Saint Paul Foundation's vice president grants and programs. The foundation then adopted an aggressive plan to expand and diversify its board membership.

The foundation also adopted a plan to increase staff awareness of diversity issues and to diversify its staff. "We developed a process to aggressively seek out appropriate candidates of color in a very clear, open and deliberate way," Couchman says. "It takes more time and effort to conduct the hiring process, but it has clearly enhanced the quality of the process, by providing the foundation with complete, comprehensive searches."

To increase participation by, and empowerment of, people of color in the philanthropic process, the foundation established the Diversity Endowment Funds (DEF) in 1993. DEF is structured as a partnership between the foundation and four distinct cultural communities to provide a mechanism for fund raising, identification of interest areas, and allocation of charitable dollars.

The Diversity Endowment Funds have had the added value of enhancing the foundation's staff and board diversification efforts. "The funds helped us establish long-term working relationships with people in communities of color that we didn't have before," Couchman says. Several people involved in DEF have since joined the foundation's staff and board.

While numbers do not tell the whole story, they do offer one indication of The Saint Paul Foundation's success with at least some aspects of its diversity efforts. The foundation's board has gone from 15 percent people of color in 1993 to 37 percent today; the staff is now 30 percent people of color, up from 13 percent four years ago.

Copyright 1998 Minnesota Council on Foundations
Reproduction in any form without the written permission of the publisher is prohibited.

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