Many nonprofits depend on corporate donors for critical philanthropic support.  Can they depend on corporate donors through this economic turmoil?  That is the question we explore here.

There has always been something counterintuitive about corporate philanthropic grantmaking during recessions.  Although one would think that shrinking corporate bottom line would dampen their philanthropic spirits, the data has shown–at least in the past few recessions–that corporations did not deep-six their charitable instincts despite squeezed profit margins, especially compared with the bravado of endowed private foundations.

How will corporate philanthropy actually fare during this recession-closing-in-on-depression?  Despite early indications of confidence, economic realities have begun to temper corporate philanthropic predictions.

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Is there anyone left in the nonprofit sector who hasn’t come across a bevy of articles listing the foundations and charities that have been ripped off by Bernie Madoff and his $50 billion pyramid scheme?  The press has been tallying the losses to investors, operating charities, and foundations, but there has been precious little analysis of what this means for the needed monitoring and oversight of how some foundations handle their–our–tax exempt dollars.

What can we learn from Madoff’s horrific financial shenanigans?  What does it all mean for the nonprofit sector? There are some important lessons here for every nonprofit in the U.S., whether victimized by losing the bulk of their resources or simply outraged by the cozy relationships of investors and foundations–playing fast and loose with tax exempt moneys.

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Even in the midst of the nation’s financial sector meltdown prompting a societal march toward a long and deep economic recession, far too many people who should know better have decided to blame the Community Reinvestment Act for the subprime foreclosure crisis and the implosion of commercial banks and mortgage brokers.

The nonprofit sector knows better—and had better get on the stick to advocate against efforts to weaken this absolutely vital component of national policy. Enacted in 1977 “to encourage depository institutions to meet the credit needs of lower-income communities” (emphasis added),[i] CRA became a crucial tool for reversing the prevalent banking practice of racial and geographic “redlining.”

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A bailout package is ready to be voted on by Congress, but that doesn’t obviate the concerns of Nonprofit Quarterly readers who by and large believe that the bailout and the conditions that led to it reveal something fundamentally wrong about our society. The so-called Troubled Assets Relief Program (TARP) may even be necessary to jumpstart liquidity and credit in the financial sector, but it is for many a bitter pill to swallow.

We asked NPQ readers to “sound off” on the bailout, and boy did they ever. Rather than moaning about the loss of potential philanthropic grants from now semi-comatose or dead Wall Street behemoths, NPQ’s commentators went to the heart of the issue. They know that no amount of charitable grantmaking from Fannie Mae, Freddie Mac, Bear Stearns, or Lehman Brothers makes up for the shortfalls nonprofits face everyday as a result of long-term disinvestment in the systems on which the least well off Americans depend.

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Should the nonprofit National Football League be exempt from IRS 990 salary disclosure requirements? Apparently the NFL thinks it deserves its own unique exempt tax status, maybe 501(c)(“m” for monopoly), allowing it to report on what it thinks is important for the public to know and withhold what might make the public a little upset with the nonprofit trade association of sports barons.

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Poor Angelo Mozilo’s Countrywide Financial Corporation has had to sell everything, including the proverbial kitchen sink, to the Bank of America for $4 billion, $20 billion less than its estimated value only a year earlier.  The woes of the nation’s largest subprime mortgage lender have helped destabilize the homeownership futures of millions of families facing foreclosure due to exploding “adjustable rate mortgages;” the stock market which appears to be on a roller coaster ride downward; and the entire U.S. economy which seems to be heading toward a recession primed by the subprime mortgage crisis. And, there’s plenty in the subprime mortgage foreclosure crisis that directly concerns nonprofit organizations.

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Editors’ Note: Readers should be aware that as this article was going to press the death of Kenneth Lay was announced. This adds another complex wrinkle to the case, while the issues raised by the article remain the same.

The Enron Mega – Scandal reached its climax with the convictions of Kenneth Lay on six counts and Jeffrey Skilling on 19 counts, but these dealt only with the business transgressions —the criminals’ (we can call them that now) lesser known “charity” manipulations escaped most public attention. The media has referred periodically to the “philanthropy” of Ken Lay and other principals, signifying a positive balance on the other side of the ledger—some good works to offset the phenomenal harm resulting from their bad behavior.

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It’s nice to see that Maurice “Hank” Greenberg hasn’t overlooked the latent powers of Securities and Exchange Commission (SEC) regulations. It was an SEC investigation, plus a look-see by then– New York State Attorney General Eliot Spitzer, that prompted American International Group (AIG) to ease Greenberg out of the firm’s top slot.

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New York State’s new attorney general, Andrew Cuomo, recently got the nation’s largest student-loan dispenser known, Sallie Mae, to pay a $2 million penalty for providing various incentives to nonprofit colleges for signing up their students as borrowers—Note: Like Fannie, Sallie was established as a GSE in 1972 to facilitate a secondary market in student loans, but it went fully private in 2004, unlike the sort of hybrid existence of for-profit GSEs such as Fannie Mae and Freddie Mac. In some cases uncovered by AG Cuomo, collegiate financial aid directors accepted personal loans, shares of stock, and compensated advisory board positions with other student loan providers; Sallie Mae however said that it only paid college advisory board members for “soda and cookies,” we kid you not.

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Whatever one might have thought of the Fannie Mae Foundation, itself the subject of some critical scrutiny in the press for its astronomical executive salary levels (the Foundation’s CEO took home almost $650,000 in salary and compensation according to the foundation’s 2005 990PF filing), its absorption of much of the advertising budget of the corporation (per a deal that was struck by former president Bill Clinton allowing Fannie to consider its for-profit-related advertising a charitable activity), and intimations that the foundation slanted its grantmaking to curry political favor for the corporation.

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It still takes the equivalent of Sam Spade to track corporate philanthropy, since so much of it occurs as “direct” corporate giving rather than publicly disclosed grantmaking through corporate foundations that have to file 990PFs. The nonprofit sector is still gunshy about asking corporate America for full corporate disclosure, despite lots of evidence of lots of perfidy in the purported charitiable activities of corporate scions. The latest revelations about corporate philanthropy come from Senators Baucus and Grassley at the Senate Finance Committee.

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As, NPQ recently noted in two articles in its spring 2007 issue, nonprofit conflicts of interest come in many forms and they are not always easy to identify. Sometimes malfeasance tips right over into verifiable criminal behavior, but more often there is a accumulation of self interested behavior—stopping just short of the criminal, perhaps, but nevertheless enormously costly both in terms of philanthropic dollars and public trust.

This article identifies a number of interconnected concerns—the problems that can occur when philanthropic dollars are tied too closely to business and personal interests through interlocking directorates, and the gaps and shortcomings of current regulatory mechanisms when it comes to spotting and addressing these complex situations.

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