Foundation Practice Rating: philanthropy and public accountability

When donors transfer money or shares into a foundation or donor advised fund, they are doing more than tax planning. They are making a commitment to using those funds for public benefit.

Tax reliefs for giving are offered precisely to encourage donors to make this transfer of wealth to civil society. This contract with the tax man raises interesting questions about how donors can best serve public benefit with the wealth they have ring-fenced for this purpose.

On one level, it is very simple. Any subsequent gift to a registered charity meets the tests of public benefit.

On another level, the processes that go into that funding decision also should also consider public accountability.

The larger the gift, the more important that decisions are taken with thought given to whether those decisions are open to public scrutiny and meet the needs of communities and wider society.

Unless there is an accountability framework in place, how does a donor know that their decisions are truly meeting the needs of the public good?

Tracking transparency, accountability and diversity

It is this line of thinking that led to the Foundation Practice Rating report, which saw its second annual report released today.

The FPR tracks the performance of 100 UK foundations according to their efforts on transparency, accountability and diversity. For true accountability, decisions have to be open to scrutiny and made with fair representation. The rating is based on 77 underlying questions.

The project is led by Friends Provident Foundation and supported by 12 other leading foundations, including Barrow Cadbury Trust, Esmée Fairbairn Foundation, The Joseph Rowntree Charitable Trust and City Bridge Trust. 

The sample group includes the 13 foundations that fund the research and the UK’s five largest foundations by grant budget. The other 82 are a stratified random sample from the rest of the foundation market, drawn from among the community foundation and those listed in the Foundation Giving Trends report.

The methodology makes it difficult to compare results across years because the bulk of the sample has changed between years one and two (although the team does check comparability using statistical measures).

Overall, seven foundations received an A grade this year, compared to three last year. The average score overall was up 7%. Transparency is the strongest pillar with 57% scoring an A grade.

A window into a foundation’s practice

Even so, 22 foundations in the sample did not have a website. The report argues that having a website is an essential pillar of transparency, enabling grantees and the wider public to gain a window into a foundation’s practice. No foundation without a website scored above a D.

The report also notes that organisations with fewer than five staff were more likely to gain a D grade. It suggests that having too few staff to develop policy and disclose information could impede both performance and impact.

However, the weakest pillar in both years has been diversity, with 48% scoring a D grade. The report notes that many organisations have diversity commitments, but no evidence of plans or targets.

It is important to note that the rating does not include measures of impact, which it states would be too complex. Instead, it seeks evidence from public sources about whether foundations are transparent about their effectiveness.

The rating is therefore not a measure of how successful a foundation is in delivering its mission, but rather how accountable it is publicly to the communities it serves in the process.

Striking a balance between governance and engagement

The report raises interesting questions for individual and family foundations whose resources are directed primarily at their mission about the level of governance needed to achieve an appropriate level of public accountability.

How can individuals, or families, bring external voices to decision making? What are the opportunities for transparency and openness? And how can they ensure they effectively connect with the needs of grantees and applicants when deciding what and how to fund? 

For founder-led foundations, there is also a critical balance to be struck between governance and engagement. Being present in the work of the foundation, being able to take risks in pursuit of higher social gains, and to feel the psychological rewards from that action, are important motivating factors for many philanthropists. There is an inherent tension between this entrepreneurial spirit of founder philanthropy and the processes that come with greater professionalisation.

The report does not grapple with these issues. Its goal is simply to highlight that all foundations, regardless of size or resourcing, should consider themselves to be on a journey towards a high standard of accountability.

Its approach offers a robust checklist for anyone who might want to consider their next step. 

Where next?

Download: Foundation Practice Rating results

Read: Social equity in philanthropy — management or measurement?