Ethics

The Tax Code includes explicit laws prohibiting activity that constitutes "self-dealing." Self-dealing transactions are generally those in which foundation expenditures result in a tangible economic benefit to a "disqualified person" (a foundation donor, manager or a family member of these). But what if the link between the foundation's action and the benefit is unclear? Three foundation executives explain how they would approach this hypothetical scenario.

THE SCENARIO

For some weeks now, Betsy had been thinking about the offer she had received. For eight years, she had been executive director of the Tiger Foundation. She had had an interesting career prior to coming to Tiger. During her term at the foundation, she developed contacts with the leadership in her region and had been meeting with government, business and community leaders on many common themes. She thought they respected her. Most of Tiger's grantees were local or regional; however, there were several national and international nonprofits in the region's major city, and the Tiger Foundation had supported them.

When the president of the International Service Committee (ISC) had decided to resign, Betsy had thought about applying but thought she might not have the appropriate background and experience. However, now one of ISC's trustees and a member of the search committee had suggested she apply because of her many contacts. She had known the agency for seven years and was close to several staff members. The Tiger Foundation had been a large and consistent supporter of ISC. Her foundation trustees had relied upon her positive summaries to award past grants and some of her trustees knew ISC trustees.

Now Betsy had another large request in hand from the ISC and was worried about two things:

• Was it appropriate for her to apply for the ISC president position as one of the leading grantmaker representatives of ISC?      
• How should she handle their new request in light of her interest in the position?

Full and Timely Disclosure
Judi Jennings
Director, Kentucky Foundation for Women, Inc., Louisville

Healthy relationships between grantmakers and grantseekers involve mutual respect and shared values. It is not surprising then that a strong friendship and common goals can result in an offer of employment from a grantseeker to a grantmaker.

To me, the troubling aspect of this scenario is not the offer of employment itself, but that the offer was made "some weeks" ago and has not yet been disclosed to the Tiger Foundation. Personnel issues are, of course, confidential by nature, but Betsy should have immediately disclosed the job offer to her board chair at the very least.

Full and timely disclosure is not only ethically responsible, it is in her best interests. Because some of the Tiger Foundation trustees know some of the trustees of the ISC, word could get out anyway. It would be way worse ethically and strategically for her board members to hear about the job possibility from a perhaps unwitting comment dropped in a casual conversation between trustees.

Now that ISC has submitted a large grant request to the Tiger Foundation, Betsy must remove herself immediately from the grantmaking process. In fact, she should have done so from the very beginning and should not have been involved in any grantmaking negotiations with ISC while she was considering applying for a position with them. If Betsy does not want to tell the entire board about the job she is considering, she can work with the board chair to figure out how best to remove herself from this grant review.

Trust is another essential ingredient in healthy relationships between grantmakers and grantseekers. Betsy has already jeopardized the trust of other grant applicants, in addition to that of members of her own board, by not disclosing that she is considering a job at ISC. She must disclose this conflict of interest immediately.

Question Yourself First
Dianne K. Garnett
President, Hilton Head Island Foundation, Inc., South Carolina

Being asked to apply for a position is always an honor, but the issues Betsy needs to address are why she was asked in the first place and is she truly interested in the job?

The first step she should take is to review the job description and determine if she could succeed in this new position. Having many contacts is but one qualification for a position of this nature and Betsy has already admitted that she questions whether she has the appropriate background and experience to excel.

Should Betsy select to pursue this opportunity, she should inform the Tiger Foundation's chair of her intentions in confidence. By keeping channels of communication open, it will ensure that the chair learns about the application from her and not an outside party. Betsy also needs to distance herself from ISC's grant request and inform the chair of ISC's board that she will not be involved with the application review or recommendation in any way.

Making the decision to pursue other career opportunities is never easy, and although it is appropriate for Betsy to apply for the position, it will not be a decision she can enter into lightly. Because she already knows the ISC organization well, she must make her choice with the intention of accepting the position if it is offered. There will be no turning back once Betsy throws her hat into the arena.

My Money, or Me
Drummond Pike
President, The Tides Foundation, San Francisco

Simply put, Betsy should quit dithering. She is either a grantmaker or a job applicant. She can't be both no matter how artfully she handles the conflict of interest.

And let's be clear, this is no "appearance of a conflict," but a real, no-doubt-about-it conflict of interest. You can't recommend funding for a group and then go ask them for a job. It's like giving a big contribution to a political party and then asking for an ambassadorship. There's no direct quid pro quo, but there surely is an implied one, and even if there isn't in your mind, you're going to have to search far and wide to find someone else who doesn't think so. Although such dubious exchanges are apparently fine in politics, I'd like to think we hold to higher standards in philanthropy.

When first entering this field, I ate lunch with one of the sages of the profession, John May, who built the San Francisco Foundation as its founding and long-time executive director. Asked how to manage the many flattering strategies anxious applicants used, such as inviting you on their board, he replied, "I tell them they can have my money or my advice, but they can't have both." He was right. Betsy should tell the group to withdraw their grant request if they want her to apply for the position.

The role of a grantmaker in most foundation settings is to be objective and dispassionate. As the gatekeeper to the treasury, boards must have faith that their staff is as independent as possible. Not an easy role to sustain personally, but it is this freedom from influence that inspires the trust of one's board.

Back to our Betsy dilemma. Betsy has no conflict if she were to respond favorably to an invitation to apply for the position at the ISC. Her past, independent judgment, that coincidentally inspired her board's support of the group, should not be used to rule out her candidacy. But once a candidate, her path is clear. She must put at arm's length any present or future dealing involving ISC until her job application is resolved. Bottom line: She's not going to be able to apply for the position without informing her board, nor would she want to, if she cared to have a good relationship with the foundation in the future as ISC's new executive director.

Further Reading
For more on a related topic, Council members may visit "Tread Carefully When Sharing Board Members with Grantseekers," by Council on Foundations Special Counsel Jane Nober at www.cof.org/membersonly/legalforum/legalservices/index.htm.