Lucy Bernholz on regulatory improvements for foundations:
Second, the regulatory system for organized philanthropy (foundations) relies heavily on penalties (see the post hoc note above). The problem with this is that no one really suffers from penalties on foundations. No CEO loses his/her job, staff aren’t docked salary, and the donor has already given over the funds to the organization so the money isn’t coming out of her pocket. The only ones who might suffer are potential grantees. Once the penalty fee is assessed the likely response is to decrease the grants budget (not cut salaries or jobs at the Foundation). So the community suffers, but these organizations have no power vis-à-vis the foundation to begin with so their pain is not a very effective deterrent.
While I'm not sure I agree that the suits in Washington can implement regulations that make foundations behave, I think Lucy is exactly right. Foundation executives are like NCAA coaches who commit recruiting violations. They don't lose their jobs, but the kids involved get booted off their teams. The only way a coach loses his or her job is if the university's students, faculty and/or community put pressure on the administration.
Perhaps an imprecise analogy, but I think communities can do a better job keeping foundations in line than any regulations on the books. The problem, of course, is that people or organizations that criticize foundations greatly decrease their chances of getting funding from the foundations they criticize. Unfortunately, it's the way the game is played.