If you’re a beginning philanthropist and are looking for good and bad examples of how to create a foundation, the stories of James Buchanan Duke (1856-1925) and his daughter, Doris Duke (1912-1993) provide a good starting point.
The three-year battle over Doris Duke’s $1.5 billion estate, which concluded in 1996, was so vicious and protracted that at one point the Los Angeles Times referred to it as “the Super Bowl of probate.” Doris Duke began by naming her butler, Bernard Lafferty, as executor. It became clear that Lafferty was clearly unqualified to be executor, and his struggle to retain his role (and his $5 million executor’s fee) led to a probate battle so complicated that, at one point in early 1996, over 100 motions were filed accusing various people and corporations involved in the case of misdeeds. But Doris Duke, like far too many philanthropists, left vague instructions on how she wanted her wealth to be used. Most of the officials chosen to lead the Doris Duke Charitable Foundation did not know Duke and had to guess what she believed in.
Since the Doris Duke Charitable Foundation only began giving grants in late 1997, it’s too early to tell how it will dispense its largesse. But given Doris Duke’s unwillingness to express her wishes, it’s entirely possible that, over time, the foundation will spend money on causes that Doris Duke would have abhorred.
Rich people no less than the rest of us are capable of neglecting to leave clear instructions regarding their bequests, but in Doris Duke’s case, it seems likely that the negligence was, well, intentional. In fact, it seems probable that one reason why Doris Duke’s will took so long to clear probate is that Duke did not want to follow the shining example set by her father. For of all the great philanthropists, James B. Duke is perhaps the best example of a donor whose intentions were followed for more than one generation. While other important philanthropists, such as Andrew Carnegie, John D. Rockefeller, and John D. MacArthur, left fortunes with no instructions on how their wealth should be used, Duke left explicit instructions—and even required that the indenture establishing the Duke Endowment be read aloud at one trustees’ meeting each year (running time, approximately 25 minutes) to remind the trustees of his wishes. The result is that the Duke Endowment, 74 years after its creation, still spends its funds in ways that its founder would have approved.
The Doris Duke and James B. Duke cases differ in another way. Doris Duke’s probate case, filled as it was with lurid and salacious details, was covered exhaustively by scores of publications, including Vanity Fair and the National Enquirer. The Duke Endowment, by contrast, does not make national news. It does not attract headline- seeking empire-builders. It remains obscure.
Fortunately, the works of Robert F. Durden provide an excellent guide to James B. Duke’s ideas. Durden, an emeritus professor at Duke University, began his exploration of Duke family history with The Dukes of Durham (1975), the definitive analysis of how James B. Duke made his fortune. After producing a history of Duke University, Durden now completes his analysis of the Duke fortune with this history of the Duke Endowment.
James B. Duke made two fortunes. Between 1880 and 1911, he created American Tobacco, which was declared an illegal trust and broken up by the Supreme Court in 1911. (Its pieces later became Liggett and Myers, P. Lorillard, and R. J. Reynolds.) After the courts forced him out of the tobacco business, Duke then created the Southern Power System. Renamed Duke Power after his death, the company remains a major utility in North and South Carolina.
In creating the Duke Endowment, James B. Duke had two goals. He wanted the endowment to pursue a limited number of charitable interests in the two Carolinas, including education, health care, orphanages, building Methodist churches, and aiding pensions for “superannuated” (retired) Methodist ministers. He even stated the percentages of funds that he wished the endowment to devote to each cause—32 percent to Duke University, 32 percent for hospitals, 10 percent for orphanages, 6 percent for church building, 5 percent for Davidson College, 5 percent for Furman University, 4 percent for Johnson C. Smith University, and 2 percent for ministers’ pensions.
Second, Duke wanted the Duke Endowment to be the primary owner of Duke Power stock. “I advise the trustees that they do not change such investment except in the most urgent and extraordinary necessity,” Duke wrote, “and I request the trustees to see to it at all times that these companies (i.e., Duke Power), be managed and operated by the men best qualified for such a service.” To place a high hurdle on the sale of Duke Power stock, Duke required that the trustees had to approve any sale.
Durden concludes that Duke failed when he thought that Duke Power and the Duke Endowment would be forever intertwined. The Tax Reform Act of 1969 says that a foundation cannot own more than 20 percent of the stock of a corporation. In the early 1970s, Duke Power needed capital, and issued enough stock that the Duke Endowment holdings fell below 25 percent. Doris Duke, a largely inactive trustee for the last 20 years of her life, vetoed any sale of Duke Power stock during her lifetime. In March 1994, six months after her death, the Endowment sold over $500 million of the stock, reducing its holdings below 5 percent.
J. B. Duke did, however, succeed in preserving his philanthropic vision. “Unlike the trustees of some foundations that have been known to stray fairly far from the original intent of the donor,” he writes, “the trustees of the Endowment had both faithfully and imaginatively continued for seventy years to do precisely those things that J. B. Duke had wanted done.”
Some changes have, of course, been made. Instead of solely giving money to “white or colored whole or half orphans,” the Endowment now gives money to foster care and adoption programs. The program for building churches now subsidizes church renovation. More unfortunately, the Endowment now holds workshops to aid nonprofits in obtaining funds for programs the Endowment won’t pay for.
But it’s important to note what has not happened with the Duke Endowment. The second act of nearly every foundation history begins when friends and associates of the donor have died, and a new generation of trained grantmakers who did not know the founder loudly announces that the creator of their job is a dead fuddy-duddy whose antiquated ideas can be ignored. That hasn’t happened with the Duke Endowment. The endowment has never tried to expand outside of the two Carolinas, and has not created any programs not thought up by James B. Duke. Except for the clauses relating to Duke Power stock, it has not tried to alter the original indenture.
All of this makes the Duke Endowment one of the few cases where donor intent has been preserved beyond one generation. James B. Duke is an unsung hero of philanthropy, whose ideas should be better known. In Lasting Legacy to the Carolinas, Robert F. Durden does a fine job in showing the importance of Duke’s philanthropic vision.
Martin Morse Wooster is a visiting fellow at the Capital Research Center. His latest book, The Great Philanthropists and the Problem of “Donor Intent”, was published this fall in updated form and includes extensive analysis of the philanthropy of James B. Duke and Doris Duke.