Recovering Donor Intent If It's Lost

A Guide for Directors

By Jeffrey J. Cain

 

As the guidebook Protecting Donor Intent explains, givers can minimize the chances that the goals behind their giving will be lost over time by choosing the right vehicle for their philanthropy, by limiting the life of their giving entity, by memorializing their intentions through a mission statement, by choosing the right people to perpetuate their philanthropy, and by creating independent safeguards to preserve their intentions. After taking these steps, a donor can have a reasonable expectation that his philanthropy will serve the purposes that originally inspired his gifts.

Many foundations whose initial donors are no longer living, however, were established without clear donor-intent guidelines, even though those donors held strong convictions about business, politics, religion, and their own charitable purposes. Of these foundations, many were established in perpetuity, and many are family foundations. In some cases, a foundation may have once had a clear purpose that has faded with time and with the inevitable intergenerational distance that grows between a donor and his heirs. In other instances, the original purpose of the foundation may have become obsolete or may have come to contradict other directives from the founding donor. In any case, perpetual philanthropic entities pose a unique set of challenges for directors who wish to honor their founders’ intentions.

What ought a board of directors to do when their donor’s original directives come into conflict with one another, become impracticable, or are simply made obsolete? If a dispute about donor intent arises, can trustees resolve it in a way that honors the intent of the donor while taking into consideration changes that have occurred since the foundation was created? What ought family members to do when most of them simply do not share the values and mores of their relatives who established the family foundation? Can they change the mission of the foundation to reflect this new reality, or are they bound by their ancestor’s original purpose? Are there circumstances when a donor’s intentions are served best by shuttering a foundation and going out of business?

For foundation directors who take seriously their responsibility to vigorously nurture their founder’s legacy through the work of their foundation, these are difficult questions. While a foundation’s bylaws often give directors great latitude in addressing donor intent, the challenges are seldom merely a question of what can be done legally. They often involve a moral question: What is the right thing to do to honor donor intent?

Even when the right course of action is known, there is always the question of whether or not it can be implemented. The passions and personalities of those who govern a foundation often have considerable influence over the organization’s ultimate direction. Working to recover, preserve, and perpetuate donor intent when it has been lost is often a matter of compromise, pursuing the right course of action in light of what is possible.

For this reason, there are few ready-made answers for the multitudinous donor-intent challenges that perpetual entities may face over time. Many involve family dynamics and intergenerational changes that are unique to the organizations and persons involved. The road to recovering donor intent, especially when the donor’s intentions were not made plain or when they have been ignored for many years, can prove challenging. Nevertheless, some general guidelines may prove helpful.

 

Overcoming Barriers to Honoring Donor Intent

For directors and trustees who serve on the boards of perpetual entities, the challenges associated with honoring donor intent over time may be familiar. A sudden rise or fall in assets; a directive that has grown obsolete or unworkable; a lack of clear direction from a forgotten founder; a sudden death; competing board member or family interests; changing community needs; a dearth or abundance of family members willing or unwilling to serve the foundation’s mission—these are but a few of the recurring issues that face directors and trustees and that can undermine a foundation’s mission.

Boards that have successfully resolved donor-intent-related issues have done so by acting quickly to identify the nature of the problem, understanding the latitude they may or may not have in interpreting donor intent; evaluating, assessing, and codifying the donor’s intent; and working to implement a new operational plan that resolves current problems while trying to avoid similar problems in the future.

There are many instances where a philanthropic mission has become unworkable because of unanticipated cultural changes. A familiar example is the Hurt family’s legacy. The Hurts endowed a house for the blind in Washington, D.C., in 1923. As Peter Frumkin reports in his book On Being Nonprofit, occupancy in the home steadily declined over the years as blind residents sought greater integration into the community. By the mid-1980s, it was clear that the mission of the Hurts’ trust—to finance a home for the blind—could no longer be carried out as originally intended. To resolve the matter, the trust’s giving was redirected to support programs for the blind, honoring their founder’s general intentions to assist the blind while adapting to unanticipated cultural changes in the blind community. Trustees acted quickly to understand how the Hurts’ philanthropic intentions could still be achieved even if their principal method of achieving it had become untenable.

Another example comes when a foundation has an unexpected windfall that materially changes the size and scale of the giving entity well beyond what its founder envisioned. Within two years of the death of hotel magnate Conrad Hilton in 1979, for example, the Conrad N. Hilton Foundation’s assets ballooned from $10 million to $160 million. The foundation had to quickly adapt. The foundation’s president, Hilton’s longtime attorney and friend, believed that the foundation’s directors had an obligation to be faithful to the founder’s values, beliefs, and wishes. While Hilton did not leave specific instructions on how the foundation ought to distribute its funds, he did have a legacy of giving in his lifetime, and strong beliefs about his faith, country, and the benefits of hard work. While he wanted his heirs to use their best judgment in carrying out the family’s philanthropy, he clearly had an intention for his philanthropy, and his family, together with the foundation president, worked hard to recover his intentions and memorialize them in the foundation’s ongoing operations.

Finally, a sudden death that leaves a foundation without its principal leader or founder often puts donor intent at risk. Foundations that have dealt with this situation successfully have taken the opportunity of a founder’s death to codify his intentions for future generations before his memory and those who knew him best fade away. For example, when Grover M. Hermann, the chairman of a predecessor company to Lockheed Martin, passed away in 1979, the Grover Hermann Foundation had been in operation since 1957. Upon his death and under the direction of his widow, the foundation’s board inserted a preamble to the foundation’s bylaws that memorialized Hermann’s life and accomplishments, his values and philosophical outlook, the specific intentions of the foundation, and the foundation’s specific areas of interest.

To be sure, not all foundations exhibit the forethought of the Hermann Foundation’s heirs, the fidelity to donor intent of the Conrad N. Hilton Foundation’s board of directors, or the reasonableness of the Hurt family’s trustees. When it comes to perpetual philanthropies and donor intent, more stubborn problems often arise.

Family foundations seem to be especially susceptible to donor-intent conflicts. Few founders of family foundations seem to take account of how families can grow (or decline) or how family values can change over time. Many family foundations find that the instructions left by a donor fuel family tensions in ways that are counterproductive to the work of the foundation—a given mission can disenfranchise or cause discord among descendants. Trustees can find themselves in the ironic situation of following instructions intended to compel family members to collaborate when in fact it is the foundation’s very mission that drives them apart.

It is also important to keep in mind that some donor-intent problems are not necessarily related to the foundation but to the charities supported by the foundation. Organizations that have long been your foundation’s preferred grant recipients, for example, may experience a change in leadership or take a new direction that makes continued support incompatible with your foundation’s mission. Some organizations become ineffectual, entitlement recipients more than partners in a common enterprise. Others simply go out of business. In these cases, foundations may simply be able to move their funding to more effective organizations while still advancing the intentions of their founder. When the donor has specified support for specific organizations, however, the problem may prove to be more challenging.

Indeed, you may very well have to deal with donor instructions and circumstances that are incompatible. The donor’s original instructions may become contradictory, impracticable, or obsolete. The most important thing is to act quickly to assess and understand your founder’s intentions and how they are either being ignored or undermined. This is the first step in recovering donor intent. Relationships with grantees, family members, staff, and trustees can deteriorate when no action is taken. Inaction can lead to grantmaking stasis and jeopardize a foundation’s charitable status. Over time, donor-intent problems tend to be magnified rather than to disappear. When it is apparent that the instructions of an organization are unworkable, directors should act decisively to identify the precise nature of the problem.

 

Determining Trustee Latitude in Recovering Donor Intent

Once a donor-intent problem is recognized, it is important to discern the amount of latitude a donor wanted directors and their successors to have in addressing such issues. Did the donor intend for each generation to determine for themselves the direction of the foundation, perhaps placing a higher premium on having family members working together, as many family foundations do, than on a specific charitable mission? Indeed, adapting the foundation’s charitable mission may well be the intention of the original donor. Or, conversely, did the donor tie the hands of future directors by specifying a very specific charitable purpose?

In 1998, the Stoneman Family Foundation was in the enviable situation of having prepared a legacy statement with the original donor, Sidney Stoneman, before he passed away. This statement, as reported by representatives of the foundation in the National Center for Family Philanthropy’s Living the Legacy, conferred a good deal of latitude on future directors in setting the charitable course of the foundation. In this way, the statement is typical of many family foundations where the charitable purpose is secondary to the donor’s intent of bonding the family across time.

The statement of donor legacy he left behind is, at its heart, a wonderful vote of confidence in the judgment of his heirs. It honors the desire of Sidney and his wife, Miriam, that the foundation be a unifying family enterprise for an indefinite period of time without obligating the family to continue it in perpetuity. Instead of limiting the family’s discretion in the future, the donor legacy statement encourages members to develop their own interests while weighing the donor’s lifetime interests against changing times and changing needs in society.

The intent of other donors may not be as apparent—or as latitudinarian—as the Stonemans’. Indeed, most directors will have to do much more detective work than the Stoneman heirs to uncover their donor’s views on trustee accord and judgment. In discerning how much latitude a board has in changing or amending a foundation’s charitable purpose, directors will need to ask whether their founder intended them to exercise judgment about the foundation’s charitable purpose even if it might substantially transform the nature of the giving. Or did the donor have a specific charitable purpose that was intended to survive without director discretion? What aspects of the foundation’s mission are negotiable and what are nonnegotiable?

If it is apparent from founding documents that the donor’s highest priority was for future generations to collaborate, then trustees are obliged to compromise by veering away from divisive issues and focusing on giving that will unite the board. Conversely, if it is clear that a donor boldly supported certain issues regardless of the rifts it may cause among future trustees, then a sympathetic director must take on a leadership role, perhaps look outside the family for trustees, and press ahead with the established course of the foundation.

Deciphering donor motivations and preferences for trustee latitude may not always be easy, especially if board members are at an impasse. An outside facilitator might be the best person to objectively gather the evidence. At the very least, there should be documentation of the donor’s decision-making patterns with regards to giving, including some evaluation of who was customarily involved in these decisions. And directors should have the opportunity to give their account of the donor’s motivations and preferences for director latitude. If this investigatory process reveals that, for example, a donor’s lone wish was for politically disparate family members to work together on a politically charged issue, then the likelihood for fulfilling donor intent may be so low that the foundation must close.

 

Codifying a Legacy Statement as a Means for Recovering Donor Intent

Once the question regarding trustee latitude has been addressed, your board should begin the process of authenticating, strengthening, or laying down a comprehensive legacy statement that codifies the donor’s original intention. If the donor is unable to be involved in creating a legacy statement, the existing directors should set one down as soon as possible—a donor legacy statement takes some areas of decision off the table and will diminish future opportunities for discord or contention. Chapter 4 of Protecting Donor Intent, titled “Defining a Mission,” deals broadly with the issue of creating a mission or legacy statement. In the context of recovering donor intent, however, some additional items should be considered.

In general, there should be an objective process for information-gathering. Interviews should be conducted with board members and trustees. Educated guesswork and anecdotal information may also prove valuable. In addition to interviewing the parties above, you should consider a review of founding documents, giving records, testimonials, letters, and other supplementary materials. Many foundations use a retreat or a series of planning meetings with trustees, advisors, families, and other appropriate parties as a means of analyzing and working through donor-intent issues. Directors should consider the donor’s intangible reasons for starting the foundation—his values, beliefs, and sense of purpose—in crafting a legacy statement. These giving values should be tracked, recorded, and recounted at every step. In due course directors should focus and prioritize these giving values. In some cases, prioritizing may mean creating a hierarchy of giving areas, focusing on one or several at a time instead of trying to do a little bit of everything.

Operating principles that make the legacy statement operational should also be established by the directors if they are not apparent in the founding documents. In particular, you should identify and institutionalize those structures, strategies, and standards that are the most effective in informing and executing the foundation’s mission. External business models and charitable strategies may provide useful examples. The aim of the operating principles is to put donor intent into practice once it has been identified and recovered. Finally, as trustees go through the process of codifying a legacy statement, they must take the opportunity to reduce risk. In both planning activities and document-writing, they should anticipate roadblocks, draft alternatives, and provide a non-judicial roadmap for change. The goal is to create a legacy document that is well-built and has lasting value.

 

Governance and Dissolution

A situation may occur where a donor’s intentions are known or have been recovered but circumstances are such that they cannot be carried out without violating some other aspect of his intentions. For example, a donor may specify that his own blood relatives must serve as the foundation’s directors. As sometimes happens, familial progeny or interest is not sufficient to keep the foundation viable. An inverse instance of this problem occurs when there is an abundance of family members qualified to serve on a family foundation’s board and the donor established no discernible criteria for restricting board membership. What ought the surviving family members to do?

In the first instance, the family members can seek new directors outside of the family, and in the second they can restrict membership through rotation or by establishing restrictive criteria—age limitations, for example. In either case, however, the family members would seem to contradict the intentions of their founder. The issue is whether or not the family can make a reasonable accommodation that attempts to honor donor intent in light of the changed circumstances. Is there a minimally intrusive step that can be taken to remedy the situation without abandoning the donor’s broader charitable purpose? Is there a remedy that comes as close as possible to the donor’s intent?

In cases where the intention of the donor is known but circumstances are such that it can only be carried out in a way that will inalterably violate his charitable purpose, then the board of directors ought to consider dissolution of the foundation.

 

Conclusion

When a donor’s intentions are uncertain or nonexistent, or when they become obsolete or contradictory, or when they conflict with one another, board members must decide how to resolve the issue without violating the donor’s charitable purpose. In many cases, directors will discover a resolution that comes as close as possible to the donor’s original intention without violating it. It is important, however, for board members to act quickly when a donor-intent issue reveals itself and to set in motion a process of discovery intended to preserve the foundation’s original charitable purpose. Many resolutions—whether it is modifying a foundation’s mission or closing its doors—will lead to an imperfect but acceptable end. Nevertheless, trustees have the duty to set in motion whatever processes best protect the values and legacy of the founder’s original intent.

 

Recovering Donor Intent at the Daniels Fund

When the board of the Daniels Fund realized the fund was drifting from its founder's principles, it initiated a rare, if not unique, intervention in the annals of American philanthropy. Through the process of recovery and restoration, of rediscovering Mr. Daniels' intent for his foundation, the board not only recovered its founder's intent but ensured its future protection as well. Philanthropy managing editor Evan Sparks examined Bill Daniels, the Daniels Fund, and its remarkable efforts to recover donor intent. Click here to read "Back to Bill."

 

More Donor Intent Resources from The Philanthropy Roundtable