Prompted by discussions within the philanthropic sector about a proposal being floated by philanthropist John Arnold and law professor Ray Madoff, I sat down with John Tyler—general counsel, secretary and chief ethics officer of the Ewing Marion Kauffman Foundation—to get up to speed on the basics of what’s being discussed and why. That proposal is calling for congressional action to regulate how donor-advised funds (DAFs) and family foundations conduct their business. (We laid out some of the core issues in our earlier blog post here.)
Our conversation had two parts to it. In the first section, John walked through what a family foundation is, as well as what kinds of existing laws ensure that family members cannot misuse foundation funds (e.g., self-dealing laws and the definitions of “disqualified persons”). John then made a great point: If existing laws are abused and enforcement is the issue, how would adding more laws be helpful?
In the second section, John laid out what DAFs are, how they work, why donors and foundations may want to make use of such a philanthropic vehicle, what policies and practices are in place to encourage the moneys to be spent in a timely manner, and who “owns” the money in a DAF. We then had chance to talk about these areas of healthy debate within the sector:
- If a payout requirement is introduced, will that inadvertently become a standard that discourages higher payouts (which are happening now voluntarily)?
- Should current populations benefit from today’s dollars or should they be reserved for future populations? Or should future donors even worry about the latter?
- Is there any credence to the idea that DAFs create power structures? Or are they vehicles that all kinds of donors can use to help funders and grantees partner together to solve problems?
As John stated, these are healthy debates to have. And because they have no one clear answer, it is best to leave these decisions in the hands of the funders, who are in the best position to judge how to use DAFs within the context of their own priorities, the communities they are working with, and the mutual interests involved. Amen to that.