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Former insider takes a hard look at nonprofit foundations in the US

The Golden Donors: A New Anatomy of the Great Foundations, by Waldemar A. Nielsen. New York: E. P. Dutton. 468 pp. $25. The performance of America's 22,000 foundations should concern us. They control assets of over $50 billion, and last year they distributed nearly $4 billion in grants -- a significant portion of all discretionary income available for public purposes.

This enormous sum has avoided inheritance taxes and is beyond the reach of the Internal Revenue Service. Foundations are unconstrained by rules or public standards. What the money is used for is left to professional managers, the noble vision of the donors -- or their eccentric whim.

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``The Golden Donors'' provides us a rare inside look at these institutions. It focuses on the 36 most wealthy -- all with assets of more than $250 million -- and describes their origins and goals (which the author found were usually vague). It also provides a critical examination of their activities.

As a former foundation officer, trustee, and consultant, Waldemar Nielsen knows where the bodies are buried. His judgments are informed and wise, and his sharp criticism is based on a clear understanding of the important role of foundations.

Not surprisingly, the pattern is the familiar bell-shaped curve -- a few foundations achieving true excellence, some shockingly bad. The majority fall far short of what Mr. Nielsen sees as their potential and their responsibilities.

Performance depends largely on foundations' boards and management. ``Their mechanism of governance is considered by most observers within foundations and outside to be the weakest element in the structure,'' says the author. Many are ``old-boys clubs'' of wealthy WASPs -- though Nielsen says some boards, such as the Robert Wood Johnson, Duke, Weingart, and Irvine Foundations -- are effective. He adds that even some of the more diversified boards, Ford and Rockefeller in particular, are functioning poorly.

He suggests trustees may be torn by conflict between two roles: Their fiduciary responsibility requires caution so as to preserve assets. On the other hand, the most productive use of the money -- and of a foundation's unique freedom -- requires vision and risk-taking.

He quotes Roderick MacArthur, son of the man who started the MacArthur Foundation: ``This is the only institution in our society that does not have constituencies that it has to keep looking to. All the others have to worry about pleasing a lot of people, so they're bound to tend toward conventional wisdom, respectability, and the lowest common denominator. Foundations should be striving to do the kinds of things that government cannot do. I repeat cannot do : things that are not politically popular, things that are too risky, things that are just too far ahead of what the public will put up with.''

Nielsen sees the performance of foundation managers as wildly uneven. McGeorge Bundy, president of the Ford Foundation (1966-79), for example, is praised for Ford's leadership in addressing national racial and social problems. ``Never in the history of American philanthropy had anything comparable in scale and aggressiveness'' to the foundation's activism been seen.

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But Mr. Bundy is also criticized by Nielsen for bad management of Ford's vast assets. Between 1966 and 1974 ``shocking losses were suffered. At the time of his arrival, its portfolio had a value of some $3.7 billion. . . . By 1970 that had slumped to $2.8 billion and then fell further to $1.7 billion in 1974, well over a 50 percent loss in value, taking inflation into account. . . .''

Nielsen says foundations must have vision. They ``are not a branch of banking in the business of merely distributing money. Rather, by their special character they are moral and symbolic entities dealing in matters of the mind and spirit. . . . They must believe in something, stand for something, and with conviction.''

Today, says Nielsen, ``a heavy cloud hangs over the private nonprofit sector.'' President Reagan came into office committed to increase military spending, reduce taxes, and cut social programs. Federal funds flowing to private nonprofit organizations were cut by some $4 billion to $6 billion in Reagan's first term.

The nonprofit sector now must cope with ``double jeopardy.'' Their income from private sources has been ``drifting down,'' while their government funds have been ``dropping precipitously.'' Meanwhile, there has been a big increase in their caseload -- from the elderly, from working mothers needing day-care services, and from ``the swelling population of ill-educated immigrants now in the country.'' Nielson wrote this book before Gramm-Rudman; the prospect is grim.

Nielsen sees foundations as unique in their special freedom. They can if necessary be unpopular or unorthodox. They can back a promising but unproven idea, individual, or institution. They can take the long view, they can test new ideas. He judges them successful if they act and not merely react; if they facilitate change; if they even gamble and dare. Some have made brilliant use of this freedom, and their pioneering has often changed our lives for the better.