Fall 2004

Ten Questions for Carleen Rhodes and Emmett Carson

The Twin Cities is fairly unique among the largest metropolitan areas for being home to two of the nation's largest community foundations. Giving Forum sat down with the heads of both foundations — Carleen K. Rhodes of The Saint Paul Foundation and Emmett D. Carson of The Minneapolis Foundation — to ask their views on a range of issues critical to the field and its future.

Q: Can community foundations co-exist successfully with overlapping service areas? If so, what are some useful strategies for minimizing conflicts?

Carson: This is no longer an option for community foundations, if it ever was. The reality is that there will be an increasing number of institutions that will offer donor-advised funds including community foundations, commercial funds, colleges and universities and United Ways, among others. The key to minimizing conflicts is to understand that we're all part of a charitable marketplace that offers donors a variety of options. Even among community foundations, no two are alike. Community foundations should encourage donors to find the best fit for their charitable interests.

Rhodes: I definitely agree. The more voices raised to help donors achieve their charitable goals, the better. Community foundations have a special responsibility to foster collaboration. This is key to the viability of many nonprofits today and is the hallmark of our foundation's success. Having several organizations join together and invest in a project has resulted in monumental results like the renaissance of the Mississippi riverfront and the economic development of St. Paul.

Emmett D. Carson   Carleen Rhodes

Q: Can community foundations be both donor-centric and mission-centric and be successful at both? If so, how do you maintain a healthy balance? If not, why not?

Rhodes: We've had spirited debates about this and have concluded that we serve as an intersection where community needs and donor interests meet. We meet our mission by understanding and addressing community needs. We listen to local residents and experts; help identify opportunities and fund organizations that directly impact the community; and help build the capacity of local nonprofits.

But we can't do our work without our donors, so meeting their needs and providing excellent service is tantamount to achieving our mission. One advantage we offer to our donors is deep expertise on St. Paul and surrounding communities. In turn, our donors expand our perspective by telling us what's important to them and providing insight into the pulse of the community.

Carson: Successful community foundations have to balance their dual purpose to identify and engage donors and, at the same time, address difficult community issues. To exclusively focus on donors with no regard to the community foundation's mission is to raise money with no thought as to the larger question of purpose. To have a mission with no resources to fulfill it is a fool's errand. With more charitable options than ever before, community foundations must be more adept than ever before in walking this tightrope.

Q: How well do you think the community foundation field has responded to the rapidly growing competition from mass-market funds, philanthropic advisors and others? What more needs to be done?

Rhodes: I think community foundations such as The Saint Paul Foundation and The Minneapolis Foundation have responded effectively to private-sector competition by adding value to our donors. While commercial funds can compete on fees, community foundations provide high-touch service and informed knowledge of the community. We've had donors terminate their funds with commercial vendors for that very reason, so we know our niche is to work with people who are interested in leveraging their contributions for greater impact.

We also see philanthropic advisors as our partners. In fact, more than two-thirds of our business comes from referrals and we've worked hard to cultivate those relationships. Our professional advisors know that we'll treat their clients as well as they do — so they have confidence sending them to us. The more that we in the field can consistently demonstrate our ability to work with professional advisors as part of their team, the more business will come our way.

Carson: While I agree with Carleen that our two foundations have done a good job of facing up to our competition, I think the community foundation field as a whole has not responded well to the growing competition for donors from commercial funds and others. Many community foundations have adopted the same approaches and measurements of success as commercial funds rather than emphasizing and valuing the unique strengths and legacy of community foundations. In particular, community foundations have begun paying too much attention to how much money was raised and the range of investment options available to donors rather than how successful they are in helping the community identify and address difficult issues — something commercial funds, and others, are unlikely to ever do.

Q: What do you think is the best economic model for community foundations to ensure their future sustainability? Are any changes needed in fee structures, minimum balances or other areas of operation?

Carson: Community foundations really need to find new ways to diversify their income streams. This includes income from donor-advised funds, cultivating bequest gifts, partnerships with financial institutions and finding ways to provide fee for service to private foundations and nonprofits. The community foundations with diverse income streams will find that they will have greater financial stability than those that do not.

Rhodes: I think we have a pretty strong model currently with diverse streams of revenue and we're reluctant to change the fee structure dramatically. We want our services to be affordable, and we know donors expect a return on their investment. Of course we'll continue to analyze programs to be sure we're providing services that donors value. As we all know, donor-advised funds are the fastest-growing philanthropic vehicle in the field and we'll keep up with market demand. And I agree with Emmett that we need to see growth in planned gifts.

Q: How important a role do unrestricted funds play in helping a community foundation advance its mission? What are some of the best strategies for increasing community foundations' unrestricted grant dollars?

Rhodes: I think we all know that unrestricted funds are vitally important. Unrestricted dollars allow us to anticipate and analyze community needs. They provide flexibility in partnering and collaborating with the public and private sectors. The best thing we can do to ensure future sustainability is to invite ongoing participation and continually cultivate the next generation of donors. Today, 63 percent of our unrestricted grantmaking is the result of two major endowment gifts the foundation received in the 1970s. Those gifts have grown to a corpus of $105 million and have resulted in $85 million in grants — what an amazing return on their investment.

Carson: The Minneapolis Foundation's objections to the impact of the state budget cuts on education, health care, seniors and job training could not have occurred without the access to unrestricted funds by the foundation's board. Unrestricted funds are the life-blood of a community foundation, and most often come from bequests from donors who believe in the foundation's mission and values. They allow our foundation to address the most difficult topics within the community or act quickly in the face of an emergency without needing to rely on convincing a donor about the importance of a particular issue.

Q: Both of your foundations have undertaken initiatives to address issues of racism in our communities. What key lessons have you learned about these experiences that might be helpful for other funders interested in tackling these issues?

Carson: We've found that one of the most important aspects of any community dialogue on racism is to jolt people in such a way as to engage the attention of those who don't normally think about diversity. The sad reality is that few of us make a practice of going outside our regular comfort zone. We learn to keep our prejudices to ourselves about "those people" for fear of being ostracized. Moreover, institutions may engage in practices that don't promote a diverse workplace.

By having provocative campaigns to capture public attention and promote widespread discussion coupled with factual information has led to tangible changes that have contributed to improving race relations in the Twin Cities. We hope that foundations, nonprofits and others will participate with us in this year's Minnesota Meeting series on immigration so that we can continue to address these questions together.

Rhodes: Emmett's point about our comfort zones ties to the findings from some research we've done for a new anti-racism initiative, where we found that about 85 percent of our residents don't think about racism or feel its impact. At the same time, we have other people saying it affects them profoundly. Our goal is to engage that 85 percent so they understand that racism is prevalent and think about how it impacts all of our lives.

One of the key lessons we've learned is that the work must start at home. Our entire staff has participated in an internal assessment and a series of anti-racism trainings. A staff task force is continuing the work to keep this an ongoing priority. This work is not easy and we're learning right along with the rest of the community. I don't think we're there yet, but I know we possess three essential attributes for future success: We want to learn. We're open to hearing feedback. And we're willing to take steps to understand the issue and each other.

Q: Do community foundations have any special obligations to address issues of racism and diversity in our communities?

Carson: Yes, community foundations have a special responsibility to address these issues because we assert that our mission is to direct charitable resources for the benefit of the community — all segments of the community. And we should also keep in mind that to have a credible voice, community foundations must continually seek to reflect the diversity of the community with regard to the composition of its board and staff, donors, grantees and vendors.

Rhodes: There is no doubt our communities are growing more racially and ethnically diverse. It's our role to help people confront their fears, assumptions and questions in safe and supportive environments and to work together to create more honest, open and just communities.

Q: The community foundation field has led the way in the philanthropic community in establishing national standards and conducting peer reviews. What lessons from this effort can be shared with the broader philanthropic field amid recent calls to increase the entire field's focus on standards and accountability?

Carson: Community foundations have a lot to share with the larger philanthropic field about best ethical practices. In particular, community foundations understand the need for public transparency as it relates to having diverse trustees, annual reports, open grant guidelines and processes, and reasonable CEO compensation. These are practices that should be considered, and modified and adopted as appropriate, by private, corporate and operating foundations.

Rhodes: I'm pleased to come to a field that clearly has had work underway for a long time. I applaud Emmett and the Council on Foundations for their tremendous leadership in this area. It's clear that there is a need for transparency, checks and balances, and a regular infusion of mission and values. An organization that showcases dedicated and engaged board members who understand their responsibility as community stewards and are comfortable asking the hard questions stays connected to the community. We can all learn from those who have failed tests of trust, whether as a nonprofit, corporation or foundation.

Q: What do you consider to be the greatest ethical challenge facing community foundations today?

Rhodes: The biggest ethical challenge is one we face every day — using the resources in our trust effectively and equitably on behalf of the community. Our decisions have power and influence and shape our community, so we have a tremendous responsibility to be sure we have broad sources of input — balancing the demands of the community with the expertise we bring to the table and making sure those two things stay fresh and connected.

Carson: The greatest ethical challenge facing community foundations today is to eliminate the appearance and reality of unethical quid pro quo relationships. Consider two examples: a community foundation promises a nonprofit special consideration for a grant if it establishes a donor fund; or a community foundation suggests to a potential donor that if the donor establishes a fund the foundation will give special consideration of a grant to the donor's favorite charity. These and other examples are all unethical business practices that undermine the integrity of all community foundations.

Q: Looking forward three to five years, what will be the most significant challenge that community foundations will face?

Rhodes: I think our greatest challenge will be to engage more people in building our community capacity for philanthropy. This is essential if we're going to establish a lasting culture of charitable giving, strengthen our resources to enrich our communities, and partner with others to impact major, systemic issues. We have a remarkable opportunity — and challenge — ahead in the upcoming generational transfer of wealth. By working together within the foundation community, we can help ensure that a significant portion of those resources is earmarked for philanthropy by educating and engaging heirs and successor advisors and by offering a variety of options for charitable giving.

Carson: The biggest challenge will be to distinguish our products from competitors. If the donor-advised funds of community foundations are viewed as identical to those of commercial funds and others, those others are more likely to have greater resources to devote to customer service, investment options, online technology and linkage to other financial accounts and services. In such a comparison, community foundations will, and should, lose market share. The only option is for community foundations to distinguish themselves through their mission-focused efforts to address the most challenging problems facing their communities. By branding community foundations as social change agents, we'll have a distinctive competence for attracting those donors who are interested in community change. 

© Copyright 2004 Minnesota Council on Foundations
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