Policies
Code of Conduct
Conflicts of Interest
Introduction
The Directors, the Investment Committee members, and the staff of the John D. and Catherine T. MacArthur Foundation aspire to the highest levels of ethical conduct in all of their work for the Foundation.
The Foundation strongly believes that its philanthropic work benefits from having members of its Board and staff with current and past experience in the not-for-profit sector and in the substantive fields in which the Foundation works. Similarly, in the management of its investments, the Foundation benefits from having on its Investment Committee people who are experienced and active in the investment field. Given the broad experience and interests of the Foundation’s Directors, Investment Committee members, and staff, from time to time, Directors, Investment Committee members, or staff may serve as officers, employees, directors, trustees, or consultants to an organization under consideration for Foundation support or investment. Consequently, transactions may arise during the ordinary course of the Foundation’s work where conflicts of interest are present.
The Foundation has adopted a conflict of interest policy to ensure the legal and ethical integrity of its decision-making and to make clear that no organization or individual benefits inappropriately because of a relationship with a Director, an Investment Committee member or staff of the Foundation.
As explained more fully below, the conflict of interest policy prohibits certain types of transactions where conflicts are present. The overall thrust of the policy, however, is to require Directors, Investment Committee members, and staff to fully and promptly disclose conflicts of interest and to follow a process that ensures that interested Directors and staff do not participate in or vote on any transaction in which they may be conflicted. The policy further identifies factors that disinterested Directors should consider in evaluating a transaction where there may be a conflict and allows for approval of a transaction if disinterested Directors conclude it is in the best interests of the Foundation. While some conflicts are apparent, other real or potential conflicts are more difficult to identify. In enforcing this policy, the Foundation will rely on a rule of reason, guided by the principles below, and the good judgment and integrity of its Directors and staff. Lastly, the policy prohibits the receipt of gifts by Directors and staff, except in limited circumstances.
Application (Section 1)
a. This Policy applies to the members of the Board of Directors and the Investment Committee and all exempt employees of the Foundation (herein referred to collectively as "Foundation Persons" and individually as a "Foundation Person") and to a Related Party of a Foundation Person as provided herein. For purposes of this policy, “Related Party” includes spouses, domestic partners or equivalent, and children and parents (within the household) of a Foundation Person.
b. This policy and the requirements herein are applicable to any transaction in which a conflict of interest is or may be present. A conflict will be present if:
- The Foundation proposes to make a grant to, investment in, or transact business with an Entity* or an individual; and
- A Foundation Person or a Related Party has a relationship with the Entity (or a close affiliate thereof) or the individual that is required to be disclosed under Section 4.
* For purposes of this policy, an Entity is to be broadly defined and includes a corporation, partnership, limited liability company, trust, organization, coalition, commission, university or institute (or a school, department, center, committee, or research project within a university or institute).
Prohibited Transactions (Section 2)
a. The Foundation shall not enter into any transaction that is prohibited by the self-dealing rules of the Internal Revenue Code and the Treasury Regulations or applicable state law, or would create excess business holdings for the Foundation.
b. In addition, the Foundation shall avoid the following transactions:
1. Grants
A grant to or for the benefit of an Entity in which:
- A Foundation Person is the Principal Executive Officer** of such Entity;
- The Foundation Person is compensated for serving in such capacity; and
- The amount of Foundation support to the Entity exceeds 10% of the total revenue of such Entity.
** For purposes of this policy, the Principal Executive Officer shall include the executive head or co-head of an Entity, including the principal investigator of a research project or co chair of a commission or other Entity.
2. Investments/Other Transactions
Any investment or other transaction if such investment or other transaction will give rise to payment of fees, income, or profits to a Foundation Person or an Entity in which a Foundation Person has a Material Financial Interest. For purposes of this policy, a Foundation Person will have a Material Financial Interest if the Foundation Person:
- Holds an ownership interest in excess of five percent of the total equity interest in such organization or entity; or
- Is a consultant or service provider to the Entity and the amounts paid to such Foundation Person exceeds five percent of the overall income of such Foundation Person; o
- Is a lender to the Entity and such loans constitute more than five percent of the indebtedness of such Entity.
Nothing herein is intended to preclude an investment by the Foundation in an Entity in which a Foundation Person is also an investor if the Investment ommittee concludes after disclosure of relevant facts that such investment is in the best interests of the Foundation.
All Other Transactions (Section 3)
a. Except if a transaction is a Prohibited Transaction (as described above), the Board or the Investment Committee, as the case may be, shall evaluate whether proceeding with such transaction is in the best interests of the Foundation after considering the factors described below in subparagraphs (b) and (c) below and such other factors as the Board or Committee determines relevant. To effectuate this policy, Foundation Persons shall disclose all necessary affiliations as provided in Sections 4 and 5 below and take such other steps as are required by Section 4 of this Policy.
b. Factors to Consider When a Grant is Proposed to an Entity with which a Foundation Person or Related Party is Affiliated.
- Whether the amount of Foundation support to the Entity is material;
- The nature of the relationship between the Foundation Person or Related Party and the Entity receiving the grant, including whether the Foundation Person or Related Party is a key officer (or had been a key officer within the preceding year);
- Whether the Foundation Person or Related Party is paid by or otherwise receiving economic benefit from the Entity receiving the grant from the Foundation or directly as a result of the Foundation’s grant;
- Whether the Foundation supported the Entity prior to the time the Foundation Person joined the Foundation’s Board or staff;
- Whether the Foundation Person or Related Party is closely identified with the Entity as its primary spokesperson or leader;
- Whether there is another Entity that could accomplish the same purposes of the proposed grant;
- Whether the Foundation Person is affiliated with the Entity at the request of the Foundation; and
- Such other matters as disinterested members of the Board may identify and consider.
c. Factors to Consider in Investment and Other Transactions.
- The nature of the Foundation’s investment, including the term of the investment and liquidity options;
- The size of the proposed investment by the Foundation relative to the size of the overall fund and the number of investors and the amount of their respective investments;
- The nature and size of the interest held by the Foundation Person or Related Party;
- The benefit to be obtained, if any, by the Foundation Person or Related party by virtue of the Foundation’s investment;
- Whether the Foundation’s investment would benefit the fund more than simply through the investment dollars, such as by bringing additional investors into the fund;
- Whether there are alternative, comparable investment opportunities for the Foundation with respect to the strategy or asset class;
- Whether an investment relationship with the Foundation already existed before the Foundation Person joined the Foundation; and
- Such other matters as disinterested members of the Investment Committee or Board might identify and consider.
Disclosure Requirements (Section 4)
a. The Board shall be advised of all affiliations (as described in the following paragraph) that any Foundation Person or a Related Party has with any Entity involved in transactions coming before the Board. The Investment Committee shall be advised of all affiliations regarding matters coming before the Investment Committee. The President shall be advised of all such affiliations regarding matters coming before the President for approval.
b. To ensure compliance with this policy, each Foundation Person shall disclose, as provided herein, the names of any Entity to which they or a Related Party at any time during the preceding three years:
- Owed a fiduciary duty and the nature of such duty (such as membership on the Board, status as an officer, or by reason of employment), or
- Had a significant financial interest as an owner (in excess of 5% of the ownership interest of such entity), lessor, lessee, or lender, or
- Receives (or expects to receive) significant personal benefits because of any contractual relationship, their status as a creditor or service provider, or by virtue of any other claim.
c. This disclosure requirement does not require disclosure of the list of any clients to whom a Foundation Person provides professional services (e.g., legal or audit services) directly or through a firm or partnership, unless in the judgment of the Foundation Person such services to the client constitute a material portion of the revenues of such professional services firm and disclosure would not violate any confidentiality obligation owing to such client.
Process and Treatment (Section 5)
Affiliations of Foundation Persons shall be designated by the Foundation as Level One affiliations or Level Two affiliations based on the nature of the affiliation. Foundation Persons shall be advised of such determination as soon as practical. Level One affiliations are affiliations where the relationship with the Entity is substantial and direct, such as employment or membership by the Foundation Person or Related Party on the board of directors of a proposed grantee or vendor. Level Two affiliations shall consist of more indirect or remote affiliations, such as when a Foundation Person (or a Related Party) is an employee of an institute within a university but the proposed grant is to an entirely different part of the university.
If a Director has a Level One affiliation with a proposed grantee or vendor (or other party with whom the Foundation expects to conduct business), such Director shall (i) refrain from participating in the discussion regarding such grantee or transaction (including as an advisor or consultant) unless asked for his/her views by the President or other Director and (ii) shall abstain from voting with respect to such matter. The chair of the Board (or chair of the Investment Committee as the case may be), in consultation with the President and the Vice President/General Counsel, shall determine whether it is advisable for such Director or Investment Committee member to be excused from the meeting to allow the Board to discuss the matter without the Director being present. Nothing herein shall prevent the Director from commenting with respect to such matter if the Director believes it is necessary for the Director to fulfill his/her fiduciary duties. If a Director has a Level Two affiliation, such Director shall refrain from voting on such matter.
If a staff member has a Level One affiliation, such staff member shall not participate in the grant process with respect to such grant unless asked by the President. In addition, the President may require that the Vice President for the program area identify for the President and the Board (a) the alternative organizations, if any, available to carry out the purposes of the grant and (b) the reasons for selection of this organization in preference to such alternative organizations or individuals. If a staff member has a Level Two affiliation, the President shall determine to what extent, if any, such staff member may participate in the grant process with respect to such grant.
Acknowledgement (Section 6)
Foundation Persons shall sign a Disclosure Form semi annually acknowledging that they have read this Statement of Policy and reporting affiliations required to be reported under Section 4. If, at any time, a Foundation Person becomes aware that the Foundation proposes to make a grant or enter into a transaction with an Entity with which such Foundation Person or Related Party has a relationship that is required to be disclosed (and such relationship has not previously been disclosed) such relationship and the underlying facts shall be promptly disclosed to the Vice President/General Counsel. If, subsequent to any semi-annual disclosure, a Foundation Person enters into a relationship required to be disclosed, the Foundation Person shall promptly make the required disclosure by providing to the Vice President/General Counsel a statement describing the nature of the relationship and identifying the organization in which s/he has a relationship.
Record to Reflect Action Taken (Section 7)
The Foundation shall keep a record of the action taken whenever the Foundation considers a grant or transaction involving an organization with which a Foundation Person or a Related Party has an affiliation. In connection with investment transactions, the Vice President/General Counsel shall prepare a memorandum containing the relevant facts regarding the conflict and indicating whether the proposed transaction raises legal issues.
Annual Report (Section 8)
The Foundation shall provide an annual report to the Audit Committee reflecting all transactions with any organizations or entities in which a Foundation Party or a Related Party was required to have disclosed their affiliation.
Limitation on Gifts (Section 9)
a. Except as permitted below, Foundation Persons or any Related Party shall not receive any pecuniary gain or accept anything of value, including, without limitation, payments, gifts, loans, tickets for events, or entertainment, from any of the following organizations or individuals:
- Organizations or individuals which have applications for grants pending before the Foundation or which have applied for or received grants from the Foundation during the preceding three years;
- Organizations or individuals which a Foundation Person has reason to believe intend to apply for a grant from the Foundation; or
- Vendors, consultants, contractors, or investment managers or affiliates thereof who have existing contracts, or proposals for contracts pending, with the Foundation.
b. Exceptions. The following are permissible exceptions to the policy stated in this section:
- Gifts of nominal value or meals, social invitations, or tickets to events that are in keeping with good business ethics and do not obligate the recipient to take or refrain from taking any action; and
- Payments for serving in an official capacity or for providing services (not related or rendered to the Foundation) to an organization described in Sections 9(a)(1), (2), and (3) required to be disclosed under Section 4 above.
c. Gift Registry. All gifts received by a Foundation Person in his/her capacity as a representative of the Foundation from organizations or individuals described in Sections 9(a)(1)-(3) above in excess of $25 shall be reported to the Vice President/General Counsel. The Vice President/General Counsel shall keep a registry reflecting the receipt of gifts and their approximate value and shall report annually to the Audit Committee regarding such registry. Gifts received by individual Foundation Persons required to be registered should generally be applied to the overall benefit of the Foundation as opposed to the individual to the extent practical. Gifts that are received as part of a broad based promotion on the part of the donor valued at less than $100 that are made to similarly situated persons at other organizations need not be registered. The Foundation reserves the right to require that any employment related gift be returned.
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