Foundation Reports: To Publish . . . or Not : A Movement Is Challenging Organizations to Be More Open About Tax-Exempt Funds

Among the 12 largest foundations in America, only one--the J. Paul Getty Trust in Los Angeles with $2.6 billion in assets--does not publish an annual report of its stewardship over the tax-exempt monies it holds for the public’s benefit.

Of the 16 largest foundations in Southern California, eight do not publish annual reports. Officials at some of these eight endowments--such as the two Norton Simon Foundations in Pasadena, which hold more than $425 million of tax-exempt assets--are so secretive about their finances and policies that they decline interviews.

Now, though, a growing national movement is challenging foundations to be more open about their policies and their finances.

Its leaders contend that all charitable organizations have a moral obligation to be forthright about the tax-exempt money and other assets they hold in trust for the public’s benefit.

They note that, with a few exceptions, charitable organizations that solicit donations from the public routinely publish annual reports and respond to queries about their finances. But most foundations that have money to give away or spend running their own program favor secrecy.

The leaders of this openness movement come from the staffs and trustees of the nation’s most prestigious foundations, both large and small.

“We are in the business of giving away money that is tax free, part of which would otherwise have gone to the government as taxes, and this creates a moral imperative for openness,” explained one of the movement’s leaders, Gretchen Dykstra, communications officer at the Edna McConnell Clark Foundation in New York. The Clark Foundation, the nation’s 30th largest with more than $300 million in assets, publishes an annual report including guidelines for grant seekers.

“Foundations ought to be accountable,” said Andrew Burness, communications officer at the Robert Wood Johnson Foundation in Princeton, N.J. The Johnson Foundation, the nation’s fifth largest with $1.2 billion in assets, also publishes an annual report, including guidelines.

“Foundations have a responsibility to the public and to the people who are influenced by the grants they make,” Burness said.

But the vast majority of the 25,000 corporate, community, private and operating foundations in America do not publish annual reports, according to the recently published 10th edition of the Foundation Directory. The directory profiles the 4,402 largest foundations, of which only about 600 publish annual reports. (All foundations must make annual reports to federal and state taxing authorities and these accountings are public record. But while they list the amounts and recipients of grants, they are far less detailed than annual reports and usually not as easily accessible.)

Of the 371 California foundations profiled in the Foundation Directory, only 55 publish annual reports while 44 more publish grant guidelines or other documents to help grant seekers and the public. But nearly three out of four California foundations profiled in the directory publish nothing.

Trustees of many foundations avoid contact with grant seekers they don’t already know by using post office boxes as their address and having unlisted telephone numbers, making it nearly impossible for applicants to contact them, according to Pat B. Read of New York, editor in chief of the Foundation Directory.

Many foundations decline to talk to outsiders. Some refuse to acknowledge receiving grant requests.

Many foundations subscribe to what is known in philanthropic circles as the “private pocketbook” theory.

Charitable Trust Status

This theory holds that the charitable trust status of foundation assets is a technicality and that so long as the foundation complies with legal requirements by filing tax returns its trustees have no further obligation to explain their foundation’s activities to any outsider.

Waldemar Nielsen, the nation’s leading philanthropic critic and an adviser to J. Paul Getty, John D. Rockefeller 3rd and Atlantic Richfield on their charitable giving, says such thinking is a major factor in what he perceives as the poor quality of most foundation grant making.

“The surest antidotes to inconsequential grant making are better information and open debate,” Nielsen wrote in his new book, “The Golden Donors,” which critiques the nation’s 36 largest grant-making foundations.

To encourage more annual reports, Grantmakers in Communication, an organization of philanthropoids (foundation executives), recently invited foundation executives to a meeting in San Francisco to learn the whys and hows of preparing annual reports.

The meeting drew officials from across the nation. But among major Southern California foundations that do not publish annual reports only the Getty Trust sent a representative.

In addition to annual reports, other forms of disclosure are also being encouraged, including distributing policy guidelines to help grant seekers, and annual public meetings where citizens can question foundation officials, Burness and others said.

Burness believes that “the public should care because, theoretically, the grants made by foundations are for the public good. They are to improve education, health care, the arts, the work of voluntary organizations and other activities from which the public stands to gain.”

But not all foundations exist to make grants. Some, like the Getty Trust and the twin Norton Simon endowments, are organized as operating foundations, devoting their resources to their own public benefit activities, such as running a museum.

But openness movement leaders say operating foundations have the same moral obligation as private, community and corporate foundations to account publicly for their stewardship of their tax-exempt endowments.

A Statement of Principles

The Council on Foundations, whose 1,500 members include most of the nation’s largest foundations, requires members to subscribe to a statement of principles that encourages, but does not mandate, publication of an annual report. (The Getty Trust belongs to the Council on Foundations, but the twin Norton Simon Foundations do not.)

In addition to the Getty Trust and the Norton Simon Foundations, here are large Southern California foundations that do not publish annual reports:

- Ahmanson Foundation in Los Angeles ($211 million), whose founder grew rich financing the Southland’s postwar building boom through Home Savings of America. The foundation has a diversified giving program focused on metropolitan Los Angeles. The foundation plans to publish an annual report once litigation over taxes due on Howard Ahmanson’s estate is resolved, one trustee said. An annual report may be issued as early as next year, the trustee said.

- Dan Murphy Foundation in Los Angeles ($96 million), whose namesake was one of the early oil men in California and which gives most of its money to Catholic charities. The Murphy Foundation does publish a pamphlet listing its most recent grants and guidelines for applicants. Foundation officials did not respond to a request for an interview.

- Kenneth T. Norris Foundation in Long Beach ($59 million), funded by a manufacturing fortune. It gives only in Los Angeles County, principally to major established charities. The foundation has considered publishing an annual report, a spokesman said.

- Thomas and Dorothy Leavey Foundation in Los Angeles ($57 million), whose creators founded Farmers Insurance Group Inc., which gives to local hospitals, colleges and grants scholarships to children of Farmers Insurance employees. Calls seeking an interview were not returned.

- James G. Boswell Foundation ($49 million), funded by a San Joaquin Valley and Arizona cotton-farming fortune, which gives principally to educational and health charities in California and Arizona. There was no response to a request for an interview.

At the Getty Trust, whose $2.6 billion in assets make it the nation’s second largest foundation, trustees and executives engaged in an “intensive examination” of the trust’s policies last year, including debate on whether to publish an annual report, a spokeswoman said.

“There were as many (trustees) for publishing as for not publishing,” Getty Trust spokeswoman Philippa Calnan added.

Last year the Getty Trust did publish, for the first time, a review of its cultural and scientific goals and objectives, but it excluded financial details.

“If we had come out with financials in our report most people probably wouldn’t even bother to read what the seven operating programs were,” Calnan said.

Another spokeswoman, Carla Boyer, said that because some of the seven programs, such as an art conservation institute, are new their budgets will change substantially in the next few years and publishing current information “would be misleading.”

But those who favor openness say it is better to explain than exclude.

“I can’t see any reason why a foundation would object to publishing an annual report,” said Michael S. Joyce, executive director of the new Lynde and Harry Bradley Foundation in Milwaukee, with $300 million in assets from an electric motor manufacturing fortune.

Joyce, who in the past has recommended numerous grants to support writers and economists who shaped Reaganomics, is not a member of Grantmakers in Communication. But because of his belief in openness, Joyce said he instituted annual reports when he headed the John M. Olin Foundation ($71 million) in New York and the Goldseker Foundation ($26 million) in Baltimore.

The Simon Foundations

At the Norton Simon Foundation ($275 million in assets) and the related Norton Simon Art Foundation ($159 million), both in Pasadena, it is not known if publishing an annual report has ever been considered.

The twin endowments are funded with the noted art patron’s fortune, which grew out of a bankrupt Fullerton bottling plant he bought in 1931, and devoted to operating the Norton Simon Museum and acquiring artworks.

Foundation spokeswoman Roxanne Hardy offered the following statement: “We do not publish an annual report because we are not a grant-making foundation. We are an operating foundation and as such the foundation works in conjunction with the museum art program.”

The four largest foundations in Southern California after the Getty Trust--W. M. Keck, Weingart, James Irvine and Conrad N. Hilton, each with more than $250 million in assets--all publish annual reports.

However, the W. M. Keck Foundation, the largest grant-making foundation in Southern California with $500 million in assets, excludes what experts say is the most useful information an annual report should contain: the amount of each grant.

Keck Foundation officials declined, through a spokesman, to be interviewed.

President Howard B. Keck said in 1982 that he personally excised the grant amounts column from the Keck Foundation annual report because he considered the information irrelevant.

He also complained in that interview that the Keck Foundation had to waste time dealing with many inappropriate grant requests and that he did not want to do anything that might encourage more requests.

The amount and purpose of each grant is vital, experts say, because it gives grant seekers the best idea of what to ask for and in what amounts.

“Foundations executives often complain that more often than not the proposals they receive are inappropriate to their interests and grant-making capability,” observed Jill R. Shellow, editor of “The Grantseekers Guide” (Moyer-Bell, $16.95) and director of issues development at People for the American Way.

“But before laying the blame on well-meaning nonprofits, these funders should look closely at the quality of the information they themselves release,” Shellow said. “Proposals can only be as good as the guidelines issued by funders.”

Publishing an annual report can actually reduce the workload on a foundation’s staff, according to more than a dozen foundation executives who attended the San Francisco meeting. Generally, these executives said, publishing a detailed annual report, including the amount of each grant, reduces the number of inappropriate grant requests.

The other large Southern California foundations that publish annual reports are the:

- Ralph M. Parsons Foundation in Los Angeles ($99 million in assets), funded by the Pasadena engineering firm’s founder, which gives seed money for new projects and organizations, as well as grants for equipment, fellowships and matching gifts.

- Kroc Foundation in Santa Barbara ($56 million), whose funders made their fortune selling McDonald’s hamburgers. (The foundation, which financed medical research seminars, is dissolving, but a closing report is expected soon. Part of the Kroc Foundation’s assets have been turned over to the new $35 million Joan B. Kroc Foundation in La Jolla, a spokeswoman there said, adding that the new foundation also plans to publish annual reports.)

- Carrie Estelle Doheny Foundation in Los Angeles ($55 million), funded with a Beverly Hills oil fortune, which gives to a variety of charities that do not get taxpayer funds.

- Harry and Grace Steele Foundation in Newport Beach ($50 million), whose founders made their fortune manufacturing electric motors, which gives to building funds and endowment drives with an emphasis on higher education.

Parsons, like many other foundations that now publish annual reports, first issued a photocopied sheet of policies and procedures. That was five years ago; the first annual report was for 1982, said Christine Sisley, Parsons Foundation program director.

“I think there was a feeling that we should make our policies known for the sake of clarification, to make it clear what our interests were and to help people make appropriate applications and to make our jobs easier by not receiving a lot of material that was not appropriate at all. And I think we wanted to display some pride in our accomplishments.

“We take the attitude that we try to help people,” Sisley said.