DATELINE: February 2, 2008, Hong Kong
The California State Legislature is currently considering legislation that would require charitable foundations with more than $250 million in assets to disclose diversity information. See California Assembly Bill 624
It seems that the government can be as intrusive as it wants when it comes to nonprofit institutions despite the fact that these are just as much...
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private entities as business corporations.
Under the proposal, which is described by David A. Lehrer and Joe R. Hicks in an op-ed piece appearing in the L.A. Times, affected foundations would be required to collect and disclose data pertaining to the gender, racial, and sexual orientation of their boards and staffs. Asking Too Much: A State Bill Puts Big Foundations' Employees and Others under a Microscope (January 31, 2008). Moreover, similiar data would have to be provided for grantees and vendors. Imagine the cost of gathering this data. We are surprised that the legislature didn’t also require that this information be provided for the companies that the affected foundations invests their endowments in. Lehrer and Hicks do a fine job of detailing the many problems with this legislative proposal. One of these is the delicate task of asking each employee his or her sexual orientation. Despite laws that might protect staff members, not every employee wants to disclose this information.
Lehrer and Hicks explain why the law makes no sense, pointing out that outcomes and results are not determined by diversity of the board or staff. They also note that need is not necessarily tied to race or sexual orientation.
The legislation is just another example of the truly stupid ideas that many people believe should be imposed on or adopted by charities. But we say that the California legislature should pass the legislation and Governor Arnold Schwarzenegger should sign it into law. We suspect that the law might drive at least one or two of the three dozen or so affected foundations out of the state, offering a good lesson to others. After all, we aren’t talking about moving machinery and equipment or a large workforce out of the state. Many foundations have small staffs and investment assets are easily shifted. It might also cause some wealthy individuals who are considering establishing a California foundation to locate the foundation elsewhere.
It might take the free market to force state legislative bodies to stop proposing stupid ideas. The State of Michigan learned its lesson a year or two ago when its attorney general proposed legislation to force the Ford Foundation to make more grants to Michigan charities. We haven't heard much about that proposal lately.
As our Jack Siegel said during a conference on the revised Form 990, the watch phrase should be “Disclosure without judgment.” The California legislature is judging with meaningless and potentially costly disclosure. We mean costly in terms of its potential impact on California residents in need rather than costly in terms of paperwork.
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