The Charitable Financial Protection System - The Bad News of Fiduciary Responsibility First

Foundations, public and even corporate entities that serve the river of philanthropic dollars hold their privileged positions because of tax and related moralistic benefits. These institutions get to make contributions to serve needs or to bring about social/cultural change because the government (meaning we the people) see advantages to letting them have a system that offers, presumably, smart financial returns if they give their money away for good purposes. If given an incentive, these entities will surely opt to use the money wisely and judiciously for those who need a hand up or a trickle down.

So much for the good news. The bad news in this model is that it builds into the charitable sector the same kind of punishments that these types of guardians have used in other financial institutions to protect their selfish interests or to damage desirable support options. The reality is that the changes to the making of home loans was giving fairer access to the housing market … until the greedy institutions sought to protect their interests by failing to live up to their promises … not because of the failure of people to make house payments. But I digress.

Using this kind of financial protection system for philanthropic institutions allows them to pull back, for example, on the numbers of amounts of grants they give or to cut out risky (which we might well call innovative) opportunities in the name of “stockholder” as opposed to “stakeholder” interests. Money gets protected; advocacy and charity gets cut. This is what fiduciary responsibility is all about.

This is exactly why the financial “Impact” movement has evolved from the earliest renditions of what are commonly thought of as double or triple bottom line returns on investments. Impact Investing is grounded on the notion that if stakeholder interests can be considered just as fairly as stockholder ($$$) interests, to use the market’s terminology, then financial smartness or frugality isn’t the only money matrix that matters. By definition, social responsibility gets a place at the table.

Here’s a real life example. Sadly, I have to protect certain interests so I speak generically.

A set of institutions in California collects tax dollars gathered through consumer purchases of a particularly carcinogenic commodity. The money goes toward preparedness educational services of various types to help the young ones turn old enough to go to school. Only with the economic meltdown, the dollars collected in this way are going into “reserve” bank accounts even as supportive assistance, grant writing and technical assistance dollars are being cut out for the end users.  Or put another way, the mother philanthropic entity gets to keep many years’ worth of operating dollars in the bank so that they will not go out of business even with economic struggles while its offspring starve to death because of a lack of basic nutritional dollars of support.

This is a perfect example of the financial protection system in action. Banks, mortgage institutions, insurance agencies, corporations, even government agencies used these justifications to cut back on core assistance dollars because of the economic meltdown. This is why companies are sitting on $2 trillion in money that is above and beyond their capital operational needs – they want to make sure they are around for the long run.

When philanthropies do this, however, the most vulnerable of people get cut twice. The money is cut out of the lives when they most need it, and the intentions behind the existence of these tax-protected charities gets their foundation of goodness cut out from under us all. These are cuts that take a lot longer than most injuries to justice to heal.

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