Academic Questions

Can Harvard solve the problem of donor intent?

Before an audience of distinguished academics, politicians and nonprofit mavens at Harvard University in April 1996, President Neil Rudenstine announced the creation of a comprehensive, university-wide center for teaching and research on nonprofit institutions. Based at the John F. Kennedy School of Government, the center will bear the name of Rita E. and Gustave M. Hauser, donors of a $10 million gift toward the center’s establishment. Philanthropy talked with Rita Hauser, an attorney and president of the Hauser Foundation, Inc., in Washington regarding her vision for the Hauser Center.

PHILANTHROPY: What are your goals for the Hauser Center?

MS. HAUSER: Obviously—and from my point of view, thank goodness—government employment has been dropping, fairly precipitously in some places. So the people who come for their masters at the Kennedy School, who are public-minded, that’s why they come, more and more are gravitating to the nonprofit world as their first job and presumably their career path. So I started asking, what are we doing to train these people? We teach them all about the federal budget but do we teach them about philanthropy? There is no one great university center of the caliber of Harvard where the nonprofit sector could be looked at as a serious sector in our economy. There are many bills pending in Congress that would provide a greater deduction when you make a tax-gift to “volunteer organizations,” however you define that, and reduce if not eliminate deductions to “advocacy” groups, however you define that. Ideally, you ought to be able to go to an intellectual center like Harvard and say, model this for me. What is the impact if we do this or if we do that or if we change the tax deductibility all together or if we change the estate tax? How will it affect giving?

The second big issue we want to address is, what are the points of confluence between the private, the not-for-profit, and the government sectors on all these major philanthropy issues: welfare, educational, and the arts. What is the proper role of government? What should it be funding? What should it not be funding?

PHILANTHROPY: So you’re really taking on a lot.

MS. HAUSER: Everything. The big thing, if you really step back and look at it, is that we are at the cusp of the greatest inter-generational transfer of money since the great fortunes were created after the Civil War. What will happen to all this money? Where will it go? What will be its purposes? Who is really capable of managing $6-8-10 billion foundations? Such a thing is not unheard of now; there are a lot of them.

PHILANTHROPY: You have in the past spoken very forcefully about donor intent and the need to preserve it.

MS. HAUSER: That’s where the money comes from.

Why is it worth preserving? Or did you just answer my question?

MS. HAUSER: What is very clear is that the not-for-profit sector is fueled by the donor’s intent. This is very different from the private sector, where you produce or invent a product and you go out into the marketplace and either it succeeds or it flops; people either buy your gizmo or they don’t buy your gizmo. So there is an enormous cleavage as to the source of financing between the for-profit and the not-for-profit sectors. But very few people were looking at the source of the revenue on the not-for-profit side, which is the donor. Should not-for-profit institutions be created in perpetuity? There’s no inherent reason why foundations should be in perpetuity. There are arguments for and arguments against. I’d like to see a real intellectual look at that issue.

You and your husband are in what you call “self-destruct mode,” meaning that you will give all your wealth away in your lifetime. Why do you have this sense of distrust in leaving it to others to distribute your wealth after you’re gone?

MS. HAUSER: A lot of the big, big foundations end up in the hands of professional managers—Ford, Kellogg, all of the gigantic foundations, many of which are probably engaging in things far removed from what the donor may have intended. I think that’s a very serious problem for people who care about where their money goes. If you’re very conservative I don’t think you’d like to think that all your money is going to fund causes that you don’t agree with, and that has of course happened.

PHILANTHROPY: You have also been pretty tough on what you call the “professional bureaucratic class” in foundations, charging that they are well paid, their perks are high, and that some of them abuse this.

MS. HAUSER: This is a new phenomenon. If you go back 20 or 30 years I don’t think anyone would have imagined that we would have a professional class administering what is really other people’s money. Who looks at salaries, perks, and so on? In corporations, shareholders can always stand up and say that the CEO is overpaid or his perks are too high; they can mount dissident slates, they can unseat the managers, there are mechanisms within the law because they are the owners of the corporation. The big question I’m really asking is, who owns a philanthropic institution? That, I think, is the most interesting intellectual question. To whom falls the ultimate responsibility?

PHILANTHROPY: You seem to place a special emphasis on the fact that ultimately these people are accountable to the person who made the money.

MS. HAUSER: If his donative intent is specific, very specific, the law will enforce it. But most donors are not that specific. If you leave your money, as most do, with general terminology to conduct research in cancer, for instance, that sounds specific, but what research in cancer? Which cancer? How? It’s very hard to lay out a plan that reaches so far into the future.

PHILANTHROPY: Is it possible?

MS. HAUSER: I don’t know, maybe not. That’s why maybe there ought to be life terms for foundations. In the law, when you leave money to children and grandchildren, the dead hand cannot weigh forever. Trusts must terminate after a definitive period. Why do we have something given to a charity that then goes on forever? Maybe the money after 50 or 100 years, whatever it might be, or after the life of the donor’s second generation of children ends, you should have to disburse the money and give it outright. I don’t know the answer, but these are very large questions and they will be addressed because the amount of money now being passed to charities is so huge that clearly the Congress will at some point get into this.

PHILANTHROPY: You mentioned that you have some trepidation that the creation of the Hauser Center might lead to what you called a “credentialed” class of foundation professionals. What do you mean by this?

MS. HAUSER: I hope foundations don’t go the way of so many big investment banks or commercial banks that won’t take in anybody who doesn’t have an MBA, or who isn’t credentialed. I hope the big foundations don’t say, oh, you haven’t gone to Harvard or Stanford and haven’t gotten your MBA, we’re not taking you in. I would be very unhappy if that happened because there are a lot of people who are motivated to work in the not-for-profit world who may not be credentialed in that sense but who have a great heart, a great interest, a great drive. There is a lot of writing already that many of the big foundations have already moved in that direction. They only take in people with certain backgrounds.

PHILANTHROPY: But you seem to think that there is certainly a need for training managers of philanthropic institutions. Do you think some of the problems that you’ve alluded to with regard to foundation management today—do you think the solutions can be taught at a Harvard center?

MS. HAUSER: I don’t know if the solutions can be taught but the issues can be addressed. When I first went to law school, most of us didn’t have a clue what it meant to be a lawyer. We had to learn what the law is. In the same way, a lot of people want to work for the not-for-profit world but they really don’t know what that is. How does it function? What are its parameters?

PHILANTHROPY: Would you consider the Hauser Center a success if a philanthropic culture or protections in the law are developed that would make you and your husband more comfortable establishing a perpetual foundation?

MS. HAUSER: Yes. Today, if I give money to a foundation and say they should do A, B, C, D, and E and they don’t, the only recourse I have—the only “enforcer” that exists—is maybe an attorney general’s office or a state charity bureau. But these offices are so woefully undermanned that they can’t possible look at thousands of foundations to see whether or not they are performing. So you need new models to determine who could compel a foundation to do what it has to do. The only time it comes into the purview of the courts is when there is a big scandal, when it’s clear that there is misspending or fraud. But otherwise it’s very unclear as to how you would enforce the donor’s intent. That’s a very big legal issue and it’s now being studied and looked at to make donors feel more comfortable.


This interview was originally published in the Winter 1998 issue of Philanthropy magazine.

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