Who better to answer this contested question than the Center for Civil Society director Jack Fowler, who this week interviewed three key figures in the philanthrosphere: Dick DeVos, founder of the Dick and Betsy DeVos Foundation; Heather Higgins, chairman of the Independent Women’s Forum and president of The Randolph Foundation; and John J. Miller, journalist and board member of the Apgar Foundation.

In the second installment of the Givers, Doers, and Thinkers Webinar Series, Fowler lays out the crisis around philanthropic perpetuity that many foundations face: “History shows that, even during their lifetimes, founders of institutions of charitable giving often have their missions overtaken or redirected by staff, trustees, and, especially, by family members who are determined to advance a different vision of the good than the one intended by the founder.”

An obvious solution to preserving donor intent is for foundations to sunset—but what are the reasons to do so, and why shouldn’t they last in perpetuity?

SHOULD YOU SUNSET YOUR FOUNDATION?

There are two prominent cases that serve as cautionary tales for philanthropists deciding whether to sunset their charitable institution: do you pursue the success of the John. M. Olin Foundation, where Olin’s loyal staff spent all foundation assents within a generation of the founder’s death, as documented by John J. Miller in A Gift of Freedom? Or does your legacy mirror that of Henry Ford, whose foundation leadership now arguably opposes the very free-market values that generated the wealth of its founder?

Afraid that their legacy may eventually be used against them, philanthropists on both the left and right can opt to sunset their foundation—spend down the assets and close the doors within a set period of time—and ensure their mission safeguarded. Yet few philanthropists choose this route.

Higgins, DeVos, and Miller concur that the problems with foundations existing in perpetuity go beyond issues of left and right. As foundations grow rapidly, they are incentivized not to spend out more than the qualifying distribution, leading to a massive increase in foundations that are not granting funds to recipients who desperately need support.

THE WRONG RESPONSE

In Howard Husock’s recent report for the American Enterprise Institute, covering payout rates and perpetual foundations, he analyzes the endowment growth of already massive American philanthropies, and how that might necessitate a call for sunsetting: “Foundations should, as best practice, seek to align grant payouts with asset growth, rather than settling for adhering to the 5 percent minimum. In doing so, they could both better fulfill their mission and preempt what could be potential regulatory demands.”

Such regulatory demands include the efforts of Senators Angus King (I-ME) and Charles Grassley (R-IA) who are seeking to pass the “Accelerating Charitable Efforts” (ACE) Act which would crack down on donor-advised funds. Husock reports that this regulation is misguided and fails to encourage foundations to seriously consider why they are choosing to exist in perpetuity. According to Husock, the bigger issue is that foundations should voluntarily increase their payout rates, without having to be strongarmed by the government. Setting an expiration date to their operations is the best way for foundations to achieve the greatest impact with their mission.

In other words, perpetuity may not be inherently imprudent; rather, foundations should consider why they seek to exist indefinitely. Higgins suggests that there is a certain hubris in thinking that donor intent will not be reinterpreted, and DeVos cautions that philanthropists can’t assume they know what the problems of tomorrow will be in a rapidly changing world.

HUMAN NATURE BEING WHAT IT IS, DOES THE LAW HAVE A ROLE TO PLAY?

“Laws are a lot like morality,” says Higgins. “There are aspects of them designed to govern us, but there are others that are designed so that the wider culture has a better chance of surviving well.”

She makes the case that conservatives have a better understanding of human nature, which is deeply susceptible to incentives and selfish motivations—even despite the best intentions. (You know what they say about the road to hell.) Foundations with only “good intentions” but no clear purpose and accountability will most often find themselves far astray from the path envisioned by their founder.

So, does Higgins think there are reasons to keep philanthropies in perpetuity? “Only if you have a specific purpose with specific accountability for those purposes.”

DECIDING THE BEST PATH FOR YOUR FOUNDATION

Is philanthropy better served when run by family or by outsiders?

Presuming the donor has a point of view and cares where their money is going, Higgins advises philanthropists that “the single best insurance policy is that money is given away in the lifetimes of the people who knew them well and are going to honor their intentions.” For DeVos, the optimal solution for foundation leadership is a blend of family members and trusted outside advisors.

Regardless of your foundation’s current plan, it is crucial for philanthropists and foundation leadership to ask: “why aren’t we sunsetting? Can our mission really be achieved forever in a rapidly changing world?”

It is in the best interest of the communities, causes, and individuals you serve to self-assess your motivations and reasoning for existing in perpetuity. When making the decision to sunset your foundation, John Miller offers these words of encouragement: “I say do it, because you can direct the giving, you can enjoy being a philanthropist, and you can have a greater impact on your own time and the future will take care of itself.”


You can watch the webinar recording here, and register for future Center For Civil Society webinars and events here.

You can find the famous debate on sunsetting (discussed in the webinar) between Heather Higgins (for) and the late Michael Joyce (against) here.

The post Should philanthropies be permanent? appeared first on Philanthropy Daily.

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