Warnings from donors on perpetual philanthropy

You can take steps to protect your donor intent in perpetuity, but none of them are foolproof. When all is said and done, no matter how clearly you define your intentions in writing, and no matter how judiciously you populate your board of trustees with trusted colleagues, there is no firm legal barrier to significant drift in the mission of your perpetual foundation.

“As currently constituted, foundations, in effect, have no accountability mechanism, save in the case of egregious violations of the law that come to the attention of their state’s attorney general,” says Heather Higgins, president and director of the Randolph Foundation in New York City in The Philanthropy Roundtable’s publication Should Foundations Exist in Perpetuity? “No one really referees the actions of foundation trustees, and no forces visit negative consequences upon them when they make poor decisions. Their latitude is extraordinary because the work they do is presumed to be for the public good.”

Recent critics of philanthropy actually encourage the dismissal of donor intent. In his 2018 book, Just Giving: Why Philanthropy is Failing Democracy and How It Can Do Better, Stanford University professor Rob Reich maintains that “the legal form of the foundation is defensible only when philanthropic assets are directed for long-term social experimentation,” and therefore, “the state must always retain the right to intervene in a philanthropic endowment.”

Even less ideological observers see pitfalls in perpetual foundations. Julius Rosenwald was one of the first philanthropists to caution his peers that “storing a large sum of money for long periods of time” resulted in “tendencies toward bureaucracy and a formal or perfunctory attitude toward the work.”

Similarly, Jeff Raikes—who served as CEO of the Gates Foundation between 2008 and 2014 and today oversees the Raikes Foundation with his wife—warns about the propensity for perpetual foundations to play it safe in their philanthropic investments rather than take on the “big bets.” Foundations may be formed by entrepreneurs willing to take bold approaches to solve problems, he notes, but “when you get into the third and fourth generation, the foundation ends up being more controlled by a set of trustees that may not have that willingness to take on risk. To a certain extent, it’s the nature of their governance responsibility: to protect the reputation of the institution. If they’re trying to protect the reputation of the institution, will they feel empowered to take the risks that might lead to some significant failure? I think not.”

“Whether it’s decades from now or centuries from now, almost any purpose that you can think of will ultimately become obsolete or unfeasible, at which point whatever money is left—which could be quite a lot—is going to be used for another purpose, a purpose that you probably can’t even conceive of, decided by people that you can’t even imagine,” warns Tom Riley of the Connelly Foundation. “If you’re choosing perpetuity, then you are choosing that ultimately it will wind up going forward as something unfamiliar run by people you don’t know.”

As Jerry Hume of the Jaquelin Hume Foundation bluntly puts it, “You can’t protect donor intent from the grave.”