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Philanthropy is a deeply human undertaking. If you are leaving money to others to disburse to charity, you are charging them with an enormous trust. Choose the right people and you will be well-positioned to see your mission properly executed. But choose the wrong people and there is no legal framework or checks and balances that can safeguard your intentions. Taking time to carefully think through the selection of your board members—and, crucially, how they will perpetuate themselves once you are gone—is critical to preserving your mission. In fact, choosing board members may be the most important decision you make.
For this reason, there is more to choosing good board members than bringing aboard your lawyer, golf buddy, and son-in-law. You cannot simply apply the best practices of human resource management. Family members are equally tricky. It is tempting to hope that your kids will come to see things your way, or that the sharp differences between them will work themselves out once they find themselves seated around a boardroom. To be sure, expertise and family ties have their place in your decision. But neither should be your primary consideration when choosing the people you will entrust with your philanthropic resources.
Donor Intent Is a Moral Concern
When considering the men and women who will govern and run your foundation, the most important thing in preserving your intentions over time is their moral character and philosophical outlook. Considerably less important is whether or not they are business associates, family members, or philanthropic-sector professionals. Proficiency in the law, program areas, or foundation management may be helpful in myriad ways when it comes to setting up and operating your foundation. But safeguarding your intentions is another matter. Whether or not a trustee will earn the faith you have put in him is, at heart, a moral rather than a technical problem.
Perpetuating your intent after you are gone makes moral demands of your trustees. They must be humble enough to subordinate their interests and enthusiasms to the mission you set for them. They must be disciplined enough to constantly revisit and re-engage your vision. And they must be brave enough to take managerial, fiduciary, or legal steps to protect your intent when they feel it has been compromised.
Make character and philosophical outlook your primary considerations when choosing trustees. Most people can be taught how to serve on a board relatively quickly. The willingness to subordinate one’s own desires in the service of another, however, is a matter of character, one that is often developed over a lifetime.
Cultivating Board Members
There is, of course, no tidy way of determining another person’s character or predicting how someone will behave in your absence. If there were, the matter of preserving donor intent would be easy. Nor are there fixed rules that, if you follow to the letter, will produce the same result every time. Choosing good board members is really a matter of cultivation and discernment, more an art than a science.
To cultivate board members means getting to know them. It means discussing over a long period of time their thinking, especially their thinking about the nature of philanthropy. It means posing questions that will uncover areas of agreement—and, equally importantly, disagreement. Do not settle for “yes” or “no” answers. Asking tough questions now may preserve the intent of your foundation in later years.
You will be best positioned to choose trustees if you watch how they perform on the job. When the first generation of a board worked directly with the benefactor, it generally does a better job of perpetuating his intentions. The give-and-take of making grants with those who will survive you and perpetuate your legacy will help you to assess their individual ability to serve as successors. They will also benefit from working with you during your lifetime, learning, as you express your giving preferences and put your mission into action, how precisely your grantmaking fulfills your goals.
Board members who share your philosophical and philanthropic outlook will also help you to define and refine your giving. In most cases, a donor begins his foundation with a certain idea, and that idea evolves over time through the successes and failures of grantmaking. Involving the individuals who will survive you in the development of the decision-making life of your grantmaking entity while you are alive is instrumental to upholding your intentions when you are gone. It can also be an especially effective way for helping family members to understand your philanthropic goals. They will learn from you—and you from them.
In speaking candidly with your trustees about first principles and donor intent, you may or may not discover in a granddaughter or a long-time legal counsel someone who shares your point of view. Will you find through grantmaking the board members who will stand up for the principles upon which you established your foundation? Whether or not you do, your legacy will be better preserved for having cultivated board members who share your outlook.
Populating Your Board
Remember: you are putting together a board. This will be a group of people, and group dynamics will come into play. These people will have to work together. Think about how they will interact with one another. How well do any of these individuals know each other? Are they friends, colleagues, acquaintances, or strangers? How do these individuals relate to you? Do some of them know you as a personal friend, while others know you as a business associate? How different will their impressions of you be? To what degree have you been candid about your intentions with each of them? Can you foresee fault lines opening among the individuals in this group? If so, what can be done to mitigate them? Is there a particularly forceful personality who could dominate the board?
There are certain types of board members that donors should probably avoid. For instance, the ideal board member should neither be too aggressive nor too passive. An overly aggressive board member can lead to unnecessary and counter-productive friction; a too-passive board member may not be willing to stand on principle on important questions of donor intent. Similarly, board members should have neither too many nor too few competing demands on their time. Board members who cannot dedicate the time and energy to their duties may be overly reliant on others (especially staff) for setting a strategic vision; those without competing demands on their time may expand their roles beyond leadership and into staff functions.
Structuring Your Board
In addition to honoring your intent, foundation boards have other responsibilities. Their duties include managing the investment of your corpus, complying with all relevant laws and codes, and (in some cases) overseeing the performance of a professional staff.
Furthermore, your philanthropy may benefit from senior-level expertise in specific fields, such as medicine, public policy, or education reform. Expert board members can be invaluable in assessing the effectiveness and qualifications of grant recipients. The issue for some donors, then, is how to develop a board that shares their philosophical outlook and commitment to donor intent while also ensuring that it has the skill sets necessary to carry out the business of the foundation.
Some donors have approached this issue by structuring their foundations with multi-tiered boards, with separate responsibilities assigned to each tier. The Searle Freedom Trust in Washington, D.C., for example, has three distinct tiers that make up its board of directors. The first tier—the trustees—is responsible for handling the foundation’s resources. This tier was directed to manage financial affairs; it allows technical experts to do their work without being involved in the foundation’s grantmaking decisions.
The second tier—grant advisors—consists of four advisors, chosen by the founder, who have expertise in areas related to the foundation’s grantmaking: these advisors are primarily public intellectuals with academic, public policy, and think-tank management experience. They share the donor’s general philosophical outlook: a commitment to individual freedom, economic liberty, personal responsibility, and traditional American values. They worked closely with the donor during his lifetime. In some cases, the grant advisors have affiliations with organizations that the foundation has supported and built relationships with over time. The grant advisors, with the advice and assistance of the professional staff, make the actual decisions about where and how the foundation will direct its funding.
The third tier—the family advisors—consists of direct descendants of Daniel C. Searle, the founder. They are required to meet at least once annually with the grant advisors to review grants and have the power, on a unanimous basis, to overturn the decisions of the grant advisors. By design, the family advisors are a prudent check on the overall direction of the foundation. They, of course, bring a personal perspective to the board, one that is instructive in answering the question: If the founder were here today, what would he do? Family members participate in but do not control absolutely the affairs of the foundation. None of the tiers do. The strength of the tiered approach is in the way it separates board powers and responsibilities and delegates them to those best suited to perform them. The structure accentuates the unique abilities of the different tiers while encouraging enough cooperation among them that, in fact, the third tier of family advisors seldom if ever rejects the grantmaking decisions of the second-tier grant advisors.
The success of Searle’s tiered board structure is a consequence of the donor’s ability to find advisors who shared his philosophical outlook and who could work well together. He worked with and cultivated his family and grant advisors during his lifetime. Doing so brought clarity rather than conflict to the practical operation of the tiered structure by specifying roles and spheres of authority. Simply creating a tiered structure will not force board members who do not share your views into conformity. It may even foster resentment and power struggles. The tiered board structure is a complement, not a replacement, for cultivating individuals who share your first principles. It is meant to enhance the operations of a board that shares your goals.
There is no easy way to determine whether creating a tiered board structure is right for your entity. The path you should take is contingent, in part, on your foundation’s size, mission, areas of giving, when or if you intend to sunset, and whether or not there are family members involved. Tiering, however, can be an important tool to help preserve your legacy and should be considered as you deliberate the future of your foundation.
Compensating Your Board Members
In October 2003, the Boston Globe reported on a number of small foundations with giant benefits. Among the Globe’s revelations was the compensation package offered to Paul Cabot Jr. From 1998 through 2002, Cabot was paid over $5.1 million for his service as a trustee of the Paul and Virginia Cabot Charitable Trust, even though the foundation gave only about $2 million to charity during this period. The scandal grabbed headlines and re-opened the question of whether it is ever appropriate to compensate the board members of philanthropic foundations.
Throughout the controversy, little if any thought was given to how compensation might be seen in light of donor intent. That was unfortunate, since compensating board members can be another mechanism for preserving donor intent. Board compensation practices vary widely, and there are benefits and drawbacks to either practice.
Arguments in favor of board compensation.
- It can clarify the agency question. Whether they take payment of $1 or $100,000, your board members can be seen, in a moral (although not legal) sense, as working for you. Through compensation, you can make clear your expectation that board members are not to see themselves as volunteers motivated by an altruistic desire to pursue some moral good as they see fit. Rather, by compensating your board members you are underscoring the moral fact that you intend for them to act, through the organization, as your agents, paid to execute the mission you have established at your institution. If you choose to compensate for this reason, it is a good idea to make your expectations explicit, conditioning payment on your board members acknowledging, in writing, that by accepting compensation they are acting in good faith as paid agents.
- It removes blanket immunity. The federal Volunteer Protection Act of 1997 (as well as similar statutes in many states) provides broad immunity from tort claims that might be filed against the volunteers of nonprofit organizations. As Harvey Dale of New York University has observed, uncompensated board members thus have a “lower risk of being held liable for negligence (or violation) of fiduciary duties.” If you provide even minimal compensation, you will eliminate this exculpatory protection and, according to Dale, you are “likely to increase the attention directors pay to fulfilling their fiduciary duties.”
- It widens the pool of available board members. If you want specialized expertise on your board, you may have to offer some form of payment in order to secure the service of people whose time is extremely valuable. World-class experts in biomedical research, for example, may only be willing to serve on your board for a fee. Perhaps you want fellow entrepreneurs. Perhaps you want to increase diversity on your board. People have competing demands on their time. Retaining their services may very well require paying them.
Arguments against board compensation.
- It’s a departure from the nonprofit tradition of volunteerism. Board members at grant-receiving public charities are generally expected to serve without compensation, while board members at grantmaking private philanthropies face no such expectation. This expectation is strong enough that many foundations would not make grants to public charities that compensated board members. If grant recipients are basically barred from paying their boards, why should grantmakers be allowed to do so?
- It may not be necessary. You may decide that compensation simply isn’t necessary to attract well-qualified board members. You may even decide that the only people you want on your board are precisely those enthusiastic enough about your mission to offer their time, free of charge.
Board compensation can be one means of harnessing individual self-interest for the purpose of preserving your intent. Whether or not it is appropriate for your foundation depends, in part, on the actual demands of board service: the time and effort that must be expended for meetings, site visits, proposal reviews, and service on committees, among other responsibilities. Recognizing the intersection between board service and self-interest will help you to think about what is appropriate for your circumstances.
Planning for Board Succession
Planning for board succession is an area where efforts to perpetuate donor intent often falter. Whether you intend to sunset your foundation or establish it in perpetuity, your founding board members in most cases will bear the responsibility of perpetuating themselves. The longer the anticipated life of your foundation, the more important it is to articulate a process for choosing the next generation of men and women who will oversee it.
“Look for These Qualities”
Bill [Daniels] said, “Here’s a list of buddies that you ought to call on when you need to replace directors.” I think it would have been very helpful if he had said, “When you look for future directors, look for these qualities,” instead of saying, “Look for these people.”
President and CEO, Daniels Fund
Board succession should unfold according to a predetermined plan, one that you have carefully considered with your original board members. The sudden loss of a key individual should not cause a crisis. If you have cultivated a set of founding board members who share your philosophic and philanthropic outlook, you have already taken one of the most important steps in ensuring that their successors will see eye-to-eye with your vision. The same qualities of character and commitment that you sought in your first-generation board members, and your process of cultivating them, ought to be emulated in choosing future generations of the board. Discussing with your founding board members and committing to paper the specific qualifications for future leadership is vitally important in transmitting your intentions.
Should you establish a foundation in perpetuity, keep in mind the importance of age diversity on your board. If the men and women whom you appoint in your lifetime as board members are of your peer group and of a similar age, it is conceivable that they may all retire at or about the same time. Imagine what would happen if there were a sudden and complete turnover of long-time board members without apparent successors. It could easily jeopardize your intent. To prevent it, try to stagger the ages of your board members.
Hiring Staff for Your Mission
It is vital that you ensure your board members’ fidelity to donor intent—but those efforts could come to nothing if you ignore your staff. Unfortunately, foundation staff can easily be ideologically removed from both the organization’s founder and its board. But, depending on the structure and size of your foundation, staff can have an outsized influence on how your mission is executed.
Hire the Right People
When I was hired as president and CEO of the Daniels Fund, I was stunned by how many professionals in philanthropy asked me, “What new direction will you take at the Daniels Fund?” It simply never occurred to me that I would take the Daniels Fund in any direction other than the one defined by our donor. It seems commonplace for many of my peers in the foundation world to believe that fidelity to donor intent denies them the ability to creatively respond to the “problems of today.” They have the right to their opinions, but they do not have the right to violate donor intent. There is an old saying: personnel is policy. What it means is that it’s necessary to hire staff members who are philosophically in line with your mission and who will work to achieve it. Each new staff member you hire, at any level of the organization, is a vote you are casting in favor of donor intent—or in favor of its dismantling.
President and CEO, Daniels Fund
Staff members are on the front line meeting with organizations. Every day, they make dozens of relatively small decisions. The sum of these “little” decisions determines the proposals that will ultimately appear before the board. Over time, the effect can amount to an abdication of board responsibilities to staff members. For many reasons—ranging from labor laws to the reasonable desire to avoid unpleasant employment conflict—staff members often have the upper hand on board members, even if they lack the office.
Professional staff members are as vital to preserving and perpetuating the mission of the foundation as the board members. Like board members, they should be cultivated over time, given more responsibility as they show a greater appreciation and understanding of the foundation’s mission. Taking the time to know and understand the character and intellectual commitments of prospective staff members, rather than merely considering their professional qualifications, is indispensable to preserving your intentions.
The Human Touch
The affairs of foundations belong, ultimately, to the messy realm of human interactions. Developing legal and organizational safeguards is essential to preserving your intentions over time. But whether or not these structural measures amount to anything largely depends upon the character and philosophical outlook of the men and women who govern and manage your foundation. Getting to know their ethical and intellectual dispositions and nurturing them in the grantmaking habits of your foundation is an important step in preserving your intentions. In other words, the time that you invest in your first-generation board members and staff will go a long way in creating a culture of fidelity to donor intent among later generations.
More Donor Intent Resources from The Philanthropy Roundtable
Protecting Donor Intent by Jeffrey J. Cain
- Get an electronic or print version of this practical guidebook.
- The Philanthropy Roundtable website’s special Donor Intent section where you can find our most recent articles and resources related to protecting donor intent.
Donor Intent Resource Library
- This extensive resource library will direct you to the best articles, books, and discussions on the topic of donor intent