At this point, we all know what happened: Susan G. Komen for the Cure decided to cut grant funding for Planned Parenthood, the executives gave conflicting stories about why it was cutting funding, and people all over raged on Facebook, Twitter, and what have you. Once criticism that I saw, several times, was the idea that the complainers had no right to complain as it was a private foundation and, anyway, it was just free money to Planned Parenthood. Couldn’t they give money to any organization they pleased?
Every finance student has to memorize the goal of a corporation: maximizing shareholder value. The shareholders elect a board of directors to represent them and oversee management. The board members are all shareholders. Now, board candidates are often proposed by senior management, run out and buy 50 shares so they can stand for election, then rubber stamp the CEO’s ideas. We know that. We also know that conscientious board members may disagree about how best to maximize shareholder value (short term or long term? Dividends or capital gains? And how – new products? Acquisition? International expansion?) Nevertheless, there are laws, norms, and fiduciary responsibilities in place.
A not-for-profit corporation is still a corporation, and many of the norms of corporate governance apply. Instead of maximizing shareholder value, though, non-profits are in the business of maximizing donor value. The donors put up the money for a cause, and the employees are to work to maximize the value of their donation. A board of directors is selected from the donors, not elected in most cases; many organizations have minimum financial contributions for board members that can be quite high (you don’t get on an arts museum board without writing a big check), although some only expect that board members give something.
Hence, Susan G. Komen doesn’t distribute free money. It distributes donor funds, and the donors have the right to a say in that. Now, a large donor has more clout than a small donor, which is fair, and most Komen donors are people who have given relatively small amounts. Nevertheless, they felt a stake in the organization.
From a governance perspective, the issue of supporting Planned Parenthood is neutral. Instead, the issue is providing donors with transparency on the use of their funds. The IRS sets minimum standards for that, but many non-profits go beyond the minimum.
No matter what the Komen board decided to do about funds for Planned Parenthood, some donors would be upset. That’s a given. It would have been better to be upfront about what the decision was and why it was made; acknowledge that some donors would be unhappy; and suggest other organizations that the unhappy folks could support toward the goal of better treatment and prevention for breast cancer. They would have lost money but kept credibility. Think of all the money spent on crisis public relations that could have been spent on research! How responsible was starting a scandal?
Large-scale philanthropy is very American. In other countries, the government pays for health care, higher education, museum operations, and the like. Here, it’s a private-sector function, and that means good old-fashioned private sector fiduciary responsibility.
