The “Fiorina Foundation” Flap—and the Coming Age of Philanthropy Scandals

A convoluted story about Carly Fiorina’s charitable giving may catch enough fire this week to pose a real threat to her recent momentum among Republican primary voters.

The story is basically this: Fiorina and her husband do their charitable giving through a donor-advised fund that is hosted by the Ayco Charitable Foundation, which is the philanthropic services arm of the investment firm Ayco. The foundation, it turns out, also manages other donor-advised funds that have disbursed money to Planned Parenthood, according to an article published today in the Daily Beast. Fiorina, of course, has lately been a fierce critic of Planned Parenthood.

Is this hypocrisy? Not at all—if you know anything about donor-advised funds, you know they are often managed by institutions that manage a great many such funds, giving to a wide array of causes. The donations made by other philanthropists with funds at Ayco have nothing to do with Fiorina’s own giving—just like it would be silly to argue that, say, Hillary Clinton is tainted because another client at the same investment management firm she uses has controversial stock holdings.

Yet already The Week, a pretty mainstream publication, has a follow-up story that says: “Carly Fiorina's charity has given half a million dollars to Planned Parenthood since 2011.” Another blog is also shouting that Fiorina “gave money” to Planned Parenthood. I’m betting that more such pieces will follow, as Fiorina is attacked from both left and right. Watch next for her poll numbers to take a hit, especially among Christian evangelical Republicans.

If Fiorina’s momentum is derailed by this episode, it will stand as another example of the rancorous stupidity of American politics. But there are also a few takeaways worth pondering related to philanthropy.

Americans Know Zilch About Philanthropy, and That’s Dangerous

The philanthropic world is a very murky place to the U.S. public. Most Americans, even those who are otherwise pretty well informed, couldn’t name more than a few major foundations. And many don’t know the difference between private grantmaking foundations and other charitable organizations. The same goes for reporters and politicians, I might add.

Fiorina’s past use of the term “foundation” underscores why there are good reasons for confusion. While she has described her donor-advised fund as the “Fiorina Foundation,” it’s not legally a foundation at all. Fiorina is hardly the first person to call a donor-advised fund a foundation. Plenty of other donors do the same thing. To take one example, the founders of GoPro recently created the the Jill and Nicholas Woodman Foundation—which is, in fact, a donor-advised fund managed by the Silicon Valley Community Foundation.

Overall, with the rise of donor-advised funds, pass-through intermediaries and other new kinds of entities, the philanthropic world is getting more complicated—and less transparent. It’s getting even harder than before for people to understand news stories that emerge from this sector.

A Lack of Transparency Also Feeds Public Distrust

The philanthropic sector is just asking for trouble as it becomes more complex and opaque. Because Fiorina doesn’t have a regular foundation that files tax returns, she and her husband have been able to give in secrecy. This is big advantage of donor-advised funds, since many philanthropists don’t want a line forming outside their door and some don’t want it known that they given to certain causes. The rise of donor-advised funds, with over $50 billion in assets in over 200,000 funds now under management, is a key reason why philanthropy has become less transparent.

Yet the specter of ultra-wealthy people giving away money in secretive ways, it turns out, is pretty unsettling to many Americans at a moment when there is intense distrust of elites of all kind. Even if the actual contents of a black box are pretty benign—Fiorina’s campaign has said that Carly and her husband have given to “dozens of charities, including those that support veterans, education and their local community—it’s easy for imaginations to run wild. Of course, there are also plenty of examples of wealthy donors secretly funneling money to push ideological agendas in ways that actually are disturbing.

Philanthropy Scandals, Real and Imagined, Are Likely to Rise

Many American don’t trust nonprofits, another sign that all major institutions of American society are viewed with skepticism these days. A new poll by the Chronicle of Philanthropy found that a third of Americans have little or no confidence in the charitable sector.

This distrust, in tandem with a philanthropic sector that is expanding in non-transparent ways, is a recipe for problems. Get ready for more scandals emerging from this sector, both real and imagined. On the one hand, more genuine scandals seem inevitable as more donors enter philanthropy, some of whom may genuinely push the envelope, engaging in unethical or illegal activities. The more apples you have in the barrel, the more chance of having some bad ones in the mix—especially if oversight is lax, as is the case today.

On the other hand, public distrust of the charitable sector and the wealthy elites associated with it means that a sizeable slice of Americans are ready to believe the worst about its doings—especially given the difficulty most people have in understanding its basic workings and how much business is now done in secrecy.

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Earlier this year, when I wrote a New York Times op-ed calling for more oversight of the charitable sector, I was criticized for not making it clear that a place like the Clinton Foundation has nothing to do with a regular private foundation. In fact, one point I was making is that the regulatory regime governing the sector writ large, and all the institutions in it, is alarmingly weak. Anyway, most Americans are unable to make heads or tails of the various types of nonprofit institutions, and even reporters can be can be pretty hazy on this stuff.

Which is why I’ve predicted that “if a populist meteor does strike the sector, it’s not likely to distinguish between philanthropic life forms.” And it’s why I’ve argued that “philanthropy’s leaders need to get ahead of the curve on reform—while they still can.