The purpose of the philanthropic foundation is to achieve the charitable objectives of the donor or donors who establish it. The primary enforcer of this purpose is the board of trustees or directors. Abdication of this responsibility by boards of directors is the number one cause of abuses in the foundation world today—whether those abuses be bloated administrative expenses, financial chicanery including excessive compensation of trustees and staff, or, perhaps the most common abuse of all, breaches of donor intent.
The foundation is not a public trust. It has public purposes, but those purposes are chosen privately, with each donor determining within a broad legal definition of charitable giving how he wants to serve the public interest. The foundation is accountable primarily to its trustees, not to the public. It is a private organization that like all private bodies has to operate within the law.
The donor for a foundation is, of course, free to delegate to others the selection of the organization’s mission. Many family foundations are deliberately structured to give succeeding generations authority to set the foundation’s charitable purposes. Henry Ford gave the trustees of the Ford Foundation no explicit instructions about its purpose. John D. Rockefeller gave his foundation an open-ended charter—“to promote the well-being of mankind throughout the world.” It is usually unwise for creators of foundations to be so open-ended in their instructions to future trustees. But this is a free country, and if the donor wishes, he or she should be free to do so.
I use the words “free country,” because the rationale for the philanthropic foundation is ultimately grounded in freedom. The fundamental premise of the American political tradition is the dignity of every single individual, the unalienable right of every man and woman to life, liberty, and the pursuit of happiness. Our system of self-government assumes that citizens have the intelligence and the right to make the most important decisions about their lives, including how to direct their charitable contributions. Freedom of philanthropy, like freedom of the press, religious freedom, economic freedom, and the freedom to elect our government, is central to the American experience.
In America, freedom is for everybody, not just the few. The American Dream holds out the promise that every family be able to own its own home, that every child have the opportunity to go to college, that every man and woman have the freedom to make the most of his or her talents. The American Dream should also hold out the promise that every American has the opportunity, should he wish, to create his own charitable foundation or comparable philanthropic vehicle. The good news is that the extraordinary wealth generated by entrepreneurial capitalism, and innovations such as donor-advised funds, are making millions of Americans potential foundation creators.
We know from other sectors of society the conditions in which freedom flourishes. Freedom thrives under the rule of law. Freedom thrives under conditions of robust debate, competition, and exchange of ideas. Freedom thrives when there are standards of excellence and vigorous watchdog groups monitoring performance. These watchdog groups include the press, professional associations and gadflies, and, where necessary, regulatory agencies. There is a role for the public sector and a much larger role for the private sector in creating the conditions where philanthropic freedom will thrive.
These principles provide a framework for thinking about the growing public, media, and governmental attention to foundation abuses. This attention can be extraordinarily beneficial for philanthropy if it is infused with a respect for the freedom of donors to make their own charitable decisions. It can be extraordinarily dangerous if it is part of a strategy to put philanthropic assets under governmental or other outside control.
The single most important way to correct abuses in the foundation world is for boards of directors to concentrate on their charitable mission. A simple test can be applied to every grant and administrative expenditure: does it help to achieve the foundation’s, and preferably the donor’s, charitable objectives?
For the donor establishing a new foundation, the revelation of abuses should be an additional reminder of the cardinal importance of answering two fundamental questions: “what do I most want to achieve?” And “Who can I choose as trustees who will share my most deeply held principles, who will honor my intent, and who will keep the foundation focused on its philanthropic mission?”
Adam Meyerson is president The Philanthropy Roundtable.
