Disclosure

IS Letter to Representative John J. LaFalce Regarding Corporate Philanthropic Disclosure

May 30, 2002

The Honorable John J. LaFalce
Ranking Minority Member
Committee on Financial Services
B-301C Rayburn House Office Building
U.S. House of Representatives
Washington, DC 20510

Dear Representative LaFalce:

I am writing on behalf of INDEPENDENT SECTOR (IS) to express our strong concern about Section 7(a)(2) as included in the Corporate and Auditing Accountability, Responsibility and Transparency Act (CAARTA), H.R. 3763 that recently passed the House. We understand the committee included this provision in the bill at your request. This provision requires that the Securities and Exchange Commission (SEC) issue rules for increased financial disclosure of relationships between corporations and philanthropic organizations. The disclosure requirements outlined in this section are extremely problematic for the charitable community because of the deterrent it poses to corporate philanthropy.

INDEPENDENT SECTOR is a coalition of more than 700 national nonprofit organizations, foundations, and corporate philanthropy programs collectively representing thousands of charitable groups in every state across the nation. As an organization, we have longstanding record of advocating for greater accountability and transparency within the nonprofit sector. In keeping with this belief, INDEPENDENT SECTOR has urged Congress to increase funding for Internal Revenue Service oversight activities of tax-exempt organizations. However, the disclosure requirements set forth in Section 7(a)(2) go too far.

Specifically, the reporting requirements unduly burden members of the immediate families of corporate directors and officers by requiring that they maintain records and disclose to the family member’s employer and the SEC any nonprofit boards on which they serve, personal contributions they make to those organizations, and all activities in which they participate on behalf of that nonprofit, particularly lobbying activities. It is quite possible that family members (parents, children, spouses) could hold divergent political, religious, and social views from the individual who serves as a corporate director or from the corporation itself. They should not be required to reveal that personal information to the corporation or the SEC. Moreover, this provision further violates the privacy of the directors and officers themselves by requiring that they disclose to the corporation (and the SEC) all of their personal contributions in excess of $10,000 to organizations on whose boards another director or officer may serve. 

The reporting requirements for corporations imposed by Section 7(a)(2) are equally as tedious and burdensome. Corporations must maintain detailed records of the boards on which their directors and their immediate family members serve and cross-reference that information with records on all cash and in-kind contributions the corporation may make at the national or local level. For example, if a corporate director serves on the board of the national United Way of America, the corporation must gather information on all of the cash and in-kind contributions that might be made by its branch offices or retail outlets across the country. In recent years, many corporations have devolved part or all of the responsibility for cash and in-kind contributions decisions to local managers or employee committees who are more familiar with local issues and service providers. 

Simply put, the onerous record-keeping required and the concerns for the privacy of directors and officers and their immediate families is likely to further discourage corporations from providing support to nonprofit organizations and to discourage directors and officers from joining the boards of nonprofits. For these reasons, INDEPENDENT SECTOR urges you to drop this provision in conference should the bill advance further.

If you have any questions as to why this particular provision is so problematic for the charitable community, please do not hesitate to contact me. Thank you for your consideration on this important matter.

Sincerely,

Patricia Read
Vice President, Public Affairs
INDEPENDENT SECTOR

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