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GuideStar Blog

From the President's Office, February 2008

Dear Friend:

Private foundations are an integral component of our nation's nonprofit sector. Without these influential institutions, only a fraction of the charitable programs that so many people rely on would receive the funding they need to survive. We here at GuideStar are grateful for the generous and patient funding we have received from many foundations.

Over the last few years, much attention has been given to how nonprofit organizations can be more effective and efficient. Increasingly donors are asking how to measure the outcome and impact of the work of nonprofits. Despite the indispensable role that foundations play, however, less attention has been paid to how they spend their money and the impact they make.

There is something undeniably mysterious about the ways in which foundations function, but this aura is perhaps due less to a lack of transparency on the part of foundations and more to a lack of clear understanding on the part of the public. We appreciate the groundbreaking contributions that the Center for Effective Philanthropy and Grantmakers for Effective Organizations have made in helping foundations operate more effectively.

Here at GuideStar, we also see foundations seeking to improve operational efficiency through technology and services such as our Charity Check tool. In an effort to understand foundation activity better, GuideStar recently partnered with the Urban Institute and the Foundation Center to issue a report titled What Drives Foundation Expenses and Compensation? Results of a Three Year Study. This large-scale study examines expense and compensation data from the 10,000 largest U.S. grantmaking foundations, documenting the ways that various characteristics of these organizations affect the manner in which their money has been spent.

There is much valuable information to be gleaned from the results of this study. Among other findings, it shows that the key factors in determining a foundation's expenses and compensation are its type and the size of its staff and its operating activities. The report shows that foundation spending patterns remain consistent despite fluctuating economic conditions. I encourage you to read the full report for yourself; it is currently available for downloading from the GuideStar Web site. Download report

For me personally, the report serves as a reminder of the incredible diversity of the sector as well as the problems that this diversity sometimes brings, especially when we rely too much on averages and ratios. The category foundation includes a wide range of organizations, from a small family foundation focused on addressing a single local issue to the mind-bogglingly ambitious international-scale efforts of the Gates Foundation. It is only reasonable that variance in their compensation and expense patterns would be equally wide. We must be careful not to compare apples to oranges.

Transparency, however, is a good thing; it can lead to the kind of revelations that are sometimes needed to rejuvenate stalled progress. And there's little doubt that better understanding of foundations is necessary, if for no other reason than the incredibly important role that they play in our society. If this new report helps every foundation in this country find a way to be only slightly more efficient and increase its impact, the cumulative effect would be staggering. We are proud to have contributed to this effort.


Bob Ottenhoff
President and CEO