OCTOBER 05, 2020

The most effective donor-intent safeguards are internal: Creating a strong mission statement, picking the right timeframe for your giving and the appropriate vehicle, and choosing the right people for your board, to name a few. But some donors have also created external safeguards for their intent. This article explores three of these options.

Keep these two caveats in mind when it comes to external safeguards:

  • Few of these options have been put to a legal test, so their ultimate effectiveness is a gray area.
  • It is generally wise to avoid putting too much stock in the willingness of your state’s attorney general to step in and defend your intent. Even though your attorney general has the statutory authority to oversee all charitable organizations, the process of weighing donor intent against the perceived public interest has resulted in a mixed legal and judicial record.

1. Give standing to outside parties

One option is to pick one or several organizations aligned with your values to serve as “watchdogs” of your philanthropy in the future. One donor example here is Thomas Roe, a South Carolina businessman who used his giving to help establish a movement of state-focused freemarket think tanks across the country.

Roe was a judicious guardian of donor intent when he established his foundation—clearly spelling out his beliefs and wishes in the founding documents and requiring grantees to pledge to uphold the foundation’s mission in their work—but he wanted to do more. So he named two organizations—the Mont Pelerin Society and the Philadelphia Society—as a “check” on his foundation.

Roe granted these organizations and their directors standing to challenge his foundation in court if it ran afoul of his intent at any point in the future. Roe also insisted that these two organizations remain substantial beneficiaries of the foundation through annual grants. This second provision—giving two organizations meaningful contributions each year—makes them, in effect, quasi-beneficiaries with a special interest in the conduct of the foundation.

Roe was active in both organizations during his lifetime, and so had good reason to believe they shared his philosophical outlook. Moreover, he had faith that their members and donors would hold them accountable to their missions, so that if the Roe Foundation ever changed course, the board members of the Mont Pelerin Society and the Philadelphia Society would step in to resolve the issue.

Whether or not a judge would give either organization standing in court is an open question. Nevertheless, the publicity surrounding such an attempted lawsuit might serve as adequate deterrent to potentially wayward Roe Foundation trustees, and the inclusion of these third parties in the foundation’s bylaws is a not-so-subtle reminder to its trustees that they can be held to account by outside parties.

2. Incorporate sympathetic organizations into your board

A second option is to specify in your bylaws or founding documents that certain organizations that share your values should be represented on your board. Under this scenario, board representatives from third-party organizations can ensure that the philanthropy is abiding by the donor’s intentions as stated in the mission statement. As board members, they will have standing to sue the board if it takes a direction contrary to its stated purpose. Some observers have even suggested that donors stipulate that a majority of board members be drawn from one or more charitable organizations that share the foundation’s mission. At minimum, they would act as watchdogs for donor intent.

There are, however, serious potential drawbacks to consider in giving third-party organizations influence over your grantmaking entity:

  • Such organizations may themselves drift from their missions in ways you cannot anticipate. It is important to consider carefully the organizations that you involve in your board, including their history and their own provisions for ensuring that they pursue their stated purpose.
  • Representatives from outside organizations may cultivate financial support for their own organizations or accede to board decisions counter to donor intent to maintain such support.
  • The organization may simply cease to exist. In this instance, a provision should require the foundation’s board to choose another representative organization, ideally from a list you provided. In that way you can maintain the positive influence you sought when you designated that board seat.

3. Institute donor-intent audits

The John Templeton Foundation is a prime example of a philanthropy that has instituted special procedures to reinforce donor intent. Every five years, the foundation undergoes an external audit to measure how well it is adhering to its founder’s wishes. The board of trustees selects three organizations that work in focus areas identified by John Templeton. Each organization then chooses an individual from its ranks to be an auditor.

The Templeton Foundation ensures that each auditor understands its core principles and focus areas and what the donor intended. The auditors then review grants approved during the previous five years and determine whether they honor donor intent. Finally, the auditors issue a report to the board of trustees, and the board reports to the members of the foundation.

While the process is more detailed than can be fully explained here, its impact is clear. “The real benefit of the compliance audit is not so much the process itself and all the particularities of the audit,” says current President Heather Templeton Dill, “but that we as management are always thinking about what the founder would want. Would he categorize this project as we’re categorizing it, and would our reason be convincing to an auditor? So it forces us always to think about donor intent, it forces us to read the governing documents on a regular basis, and it forces us to read a lot of books that my grandfather wrote in which he further articulated his vision … The audit process is not for every organization or every donor because it does mean we need certain staff members and systems to monitor all the details,” Dill warns. “But this is how my grandfather wanted it.”