In The Republic, Socrates presents a famous moral problem about a man who finds a magic ring. He discovers to his amazement that when he turns the ring a certain way on his finger, he becomes invisible. The moral problem that Plato explores is essentially this: If a person could become invisible at will, he could profit from all manner of evil deeds, escape detection, and appear to be morally upright. Given such power, why should a person choose not to use it for evil purposes?
Yet trustees and managers of philanthropic foundations enjoy a very similar kind of “magical” power: They are invisible to the deceased benefactors who established the foundations on which they serve. Like the man in Plato’s fable, they can depart from the donors’ intent without being seen—at least not by the deceased founders. Given that power, why should they honor the donor’s intent rather than use his bequest for causes they think more worthy?
The worst-kept secret in philanthropy is how often trustees and managers choose the latter course. The bad news is that trustees have done this for many years and, in all too many cases, have never been called to account. The good news is that a few far-sighted and principled benefactors have devised legal protections to ensure that their wishes cannot be casually discarded by those entrusted to carry them out. One example I’m directly familiar with is the Roe Foundation of Greenville, South Carolina. A few years before he died earlier this year, founder Tom Roe made sure his charter included four elements to preserve his intent.
First, he stated his mission clearly and spelled out his beliefs and principles in a preamble that includes gems like this: “He learned in his formative years the illogic of government policy when his family was paid to destroy their crops or let the land lay idle.” A section headed “The Donor’s Intent” sets out more general principles.
Second, he was careful to appoint trustees who share his beliefs. The charter requires all current and future trustees (the foundation is expected to operate in perpetuity) to subscribe in writing to the foundation’s mission and the donor’s intent.
Third, to receive funding, grantees must subscribe in writing to the foundation’s mission and the donor’s intent.
And fourth, Roe gave two trusted organizations—the Mont Pelerin Society and the Philadelphia Society—standing to sue the foundation’s trustees if they depart from his intent.
While this latter tactic shows great promise, there are, of course, no ironclad guarantees. The very organizations with standing to sue could drift in their own missions over time and cease to reflect the principles of the organizations they were authorized to safeguard. One precaution against this possibility is to achieve “safety in numbers,” by appointing a large number of organizations that reflect the founder’s original intent.
Tom Roe was a personal friend of mine, a respected trustee of the Heritage Foundation, and one of the most dedicated and effective conservative leaders I have ever known. I have served on the Roe Foundation’s board for more than 15 years and am its vice chairman. He personally founded and nurtured the State Policy Network, a network of state-level think tanks that has become a powerful promoter of conservative public policy ideas.
Tom was an unusually successful entrepreneur whose deepest wish was to commit his wealth to the continued advancement of his principles, and he left his foundation in good hands, now chaired by his widow, Shirley. It would be a wrong beyond words if future trustees were to ignore his wishes. The steps he took in amending his charter are promising ways to prevent a kind of wrong that is too often regarded as just another fact of philanthropic life.
Protecting donor intent through such charter provisions is made all the more urgent by two influences that are going to multiply the problem many times over.
The first is the much-discussed intergenerational transfer of wealth. A Boston College study last year estimated that during the 55-year period from 1998 to 2052, almost $41 trillion (in constant 1998 dollars) will pass to heirs.
From this projected growth in wealth transfer, we can reasonably forecast an increase in the number of new philanthropic foundations. But another influence is likely to make that increase even larger, and that is the death tax. If you begin with the federal estate tax of 55 percent and add fees and commissions to executors and lawyers, a substantial portion of a large estate can vanish in transit.
I sincerely hope these confiscatory taxes are abolished long before 2052. But for the foreseeable future they will have the effect of a bulldozer, pushing estates into new foundations established to keep tax collectors at bay. The dilemma is that the very foundation that insulates wealth from taxation exposes it to the problem of donor intent.
That is why founders would be wise to follow Tom Roe’s example, particularly his tactics of clearly specifying his intent and then giving third-party watchdogs legal standing to sue.
An important question is whether and on what conditions courts will recognize third-party standing under such arrangements. Because this tactic has not been widely used, precedents are not only rare, but state court decisions usually don’t bind other courts in the same state and never bind courts in other states. Nonetheless, this is a stratagem worth wider application. The greater the number of foundations who adopt it in some form, the greater the probability of lawsuits that will build a record of case law to constrain those who forget that “trustee” derives from the root word “trust.”
The problem of donor intent is at bottom a moral problem, and the story from The Republic reminds us of its nature: Trustees could not violate donor intent if they were not invisible to deceased founders. So it is fitting that third parties with an interest in a foundation’s activities should be called “watchdogs,” because they can see it when trustees fail to honor a founder’s intent.
Let those who have eyes also have standing to sue.
Edwin J. Feulner is president of the Heritage Foundation and vice chairman of the Roe Foundation.