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//A flawed defense of perpetual foundations

A flawed defense of perpetual foundations

Every donor has to face some basic questions about what to do with his or her wealth. Should I create a foundation in perpetuity, or should I impose a term limit on my giving? What causes should I spend my money on?

Joel L. Fleishman, in Putting Wealth to Work tries to persuade donors that the right thing to do is to create perpetual foundations with few restrictions. He says in his prologue that if donors choose to create term-limited foundations, that “America will be at risk of losing its capacity” to assist in the creation of “high-quality civic-sector organizations that have helped this country the dynamic society it has long been.”

Fleishman, who teaches law and public policy at Duke University, spends much of his time critiquing the idea of donor intent, which he says “conservative-leaning organizations” are using to promote a hidden agenda.

There is one book on the subject of donor intent. I wrote it. It is now called How Great Philanthropists Failed And You Can Succeed At Protecting Your Legacy and it has been through four editions since 1994.

I would welcome Fleishman’s critique of my arguments, but Fleishman has chosen not to mention my work or me. His readers should ask themselves whether ignoring the arguments against his position is the best way to be persuasive.

Fleishman and I agree on some things. We would both oppose the excise tax on foundation endowments or the comparable tax on university endowments. We both agree that the Effective Altruism movement (which I wrote about here) is a very limiting way to practice philanthropy.

Finally, I will note the most forceful argument in favor of perpetual foundations, which is made by Fleishman’s colleague at Duke, Tony Proscio. Proscio writes that the danger of having too short a period for sunsetting a foundation is that “many cash-hungry nonprofits simply cannot absorb a great deal of cash to be spent over a short time span…You simply cannot, in a brief period, multiply the kind of highly trained talent needed for advanced-level work by flooding the field with money.”

The question, of course, is what constitutes a ‘short time span.’

Surely if donors pursue the wisest course, which is to limit the life span of a foundation to no more than 20 years after the death of its creator, donors and grantees can find productive uses for grant money. The history of the Whitaker Foundation, which funded biomechanical engineering between 1991 and its sunset in 2005, is a constructive example.

Fleishman admits that the Whitaker Foundation’s achievements shows that “sometimes a short, intensive burst of large-scale grantmaking—of a size that requires a foundation to spend out everything it has—does make sense as the best route to achieving a particular mission.”

Fleishman’s method is to offer case studies of donors who set up foundations and struggled with whether or not to create them with term limits. However, his studies only offer partial information, as he withholds evidence that would undermine his case.

For example, Andrew Carnegie’s famous essay “The Gospel of Wealth” is a call for donors to spend money during their lifetime. “Knowledge of the results of legacies bequeathed is not calculated to inspire the brightest hopes of much posthumous good being accomplished by them,” Carnegie wrote.

Carnegie created a series of organizations with limited aims. But by 1910, he had run out of ideas and still had half his money left. So he created the Carnegie Corporation of New York as a perpetual foundation with no limits on how it would spend its money. Fleishman says “he chose as his default course of action the creation of a perpetual general-purpose foundation.”

Fleishman fails to note that Carnegie regretted creating the Carnegie Corporation. In 1912, a year after its creation, he tried to pull $10 million out of the Carnegie Corporation endowment to create a British charity. Biographer Burton Hendrick writes that “Carnegie was astonished when the question was raised as to the legality of this step,” and went to his adviser, Elihu Root, “who acted as a kind of supreme court when points like this were at stake.” Carnegie was told that that the creation of the Carnegie Corporation was irreversible, and its endowment could not be touched.

And as historian Robert E. Kohler notes, during Carnegie’s lifetime the Carnegie Corporation “was more an old-fashioned charity than a modern foundation” whose grants largely went to other organizations Carnegie created.

Fleishman also lists a number of foundations that he says are good examples of upholding donor intent. Among them are the David and Lucile Packard Foundation. Readers may consult the 13,000 words in my book exposing the countless ways the Packard Foundation violates the intentions of David Packard to see if Fleishman’s claim is accurate.

Fleishman also muddies the waters of philanthropic history on the events that led to Henry Ford II’s resignation as trustee of the Ford Foundation, which I’ve written about here.

Finally, it should be noted that the criticism of perpetual foundations is bipartisan. The liberal National Committee on Responsive Philanthropy has repeatedly argued, in its 2004 report Axis of Ideology and subsequent publications, that perpetual foundations tend to be sluggish, calcified, and frequently unable to adapt to changing times and circumstances. The NCRP and I would disagree on what foundations should spend their grants on, but we would agree that foundations with term limits are better able to meet the challenges of our time than are perpetual.

Because Joel Fleishman presents his readers with incomplete information, Putting Wealth to Work is far less persuasive then it would have been if Fleishman had been more accurate in his discussion of the history of philanthropy.

2018-08-27T09:19:13+00:00 August 27th, 2018|Categories: Nonprofit News|