It’s now been twenty-five years since I started writing about donor intent. In 1989 Tim Ferguson, then the features editor at the Wall Street Journal editorial page, suggested that I look at the lives of Andrew Carnegie and John D. MacArthur and what happened to their wealth after the donors died. Tim Ferguson is the best of editors, someone who can pass on good ideas to writers who can use them.
I am also grateful to Willa Johnson, the founder and first president of the Capital Research Center. In 1993 I suggested to her that it might be a good idea to write something about donor intent. She thought up the idea of a book and signed me to a contract before I left the office. That book, The Great Philanthropists and the Problem of “Donor Intent,” was first published in 1994 and published in revised and expanded editions in 1998 and 2007.
Now at first glance you might think the struggle for donor intent is pointless. The large foundations I wrote about—the Ford and MacArthur Foundations, the Carnegie Corporation of New York, and the Pew Charitable Trusts—show no sign of returning to the ideals of their founders and arguably have moved even farther away from what their founders believed. The Pew Charitable Trusts, for example, morphed into a liberal Washington think tank, albeit one that occasionally produces useful polling and survey research.
Moreover, the argument goes, the creators of these foundations have been dead for centuries. Who cares about them? We know best how to spend their money for causes that we want.
Let’s propose a counterargument. I wrote my book to appeal to the rising generation of donors. My question is this: why is the perpetual foundation, one where a tiny percentage of an endowment is spent each year, the best way to give?
Julius Rosenwald, the wisest of his generation of donors, said it best in his great essay “Principles of Public Giving” (1929).
I think it inevitable that as trustees and officers of foundations grow old they become more concerned to conserve the funds in their care than to wring from these funds the greatest possible usefulness. That tendency is evident already in some of the foundations, and as time goes on it will not lessen but increase. The cure for this disease is a radical operation. If the funds must exhaust themselves within a generation, no bureaucracy is likely to develop around them.
The rule that an endowment must be preserved at all costs leads to bizarre situations such as the recent announcement that Sweet Briar College will close at the end of the school year. What makes the announcement strange is that the school has an $84 million endowment.
I do not know very much of the history of Sweet Briar, but surely the crisis that led to closure was one that developed over many years. Why did the school have to preserve its endowment? If the school wasn’t getting enough applicants, why couldn’t they offer current students a tuition rebate if they brought in suitable applicants who were accepted?
Why if Sweet Briar was in crisis (but not a financial crisis) did the Sweet Briar endowment have to be preserved?
The Sweet Briar case is unusual, but it’s far more typical that a perpetual foundation spends the minimum payout it can get away with. More often than not, they claim they need to do this to preserve the memory of the founder, even though it is nearly always the case that the founder’s ideas are abandoned within 30 years of his death, as the friends and associates of the founder pass away. This is particularly true in cases where donors leave vague instructions in their instructions that give foundations unlimited license to spend money on whatever they want.
With rare exceptions, the cases where a donor’s intent is preserved are private operating foundations such as the Liberty Fund which have very strict aims—in the Liberty Fund’s case, publishing books and organizing conferences where people talk about books and ideas.
(I have participated in three Liberty Fund conferences and was the keynote speaker at one. I very much enjoyed them.)
But don’t you, as a donor, want to be immortal? Don’t you want future generations to think about you as they learn about the foundation you have created?
Here, again, Julius Rosenwald’s advice remains instructive.
I am certain that those who seek by perpetuities to create for themselves a kind of immortality on earth will fail, if only because no institution and no foundation can live forever. If some men are remembered years and centuries after the death of last of their contemporaries, it is not because of endowments they created. The names of Harvard, Yale, Bodley, and Smithson, to be sure, are still on men’s lips, but the names are now not of men but of institutions. If any of these men strove for everlasting remembrance, they must feel kinship with Nesselrode, who lived a diplomat, but is immortal as a pudding.
The best way to preserve donor intent is for donors to spend their wealth while they are alive or within twenty-five years of their deaths. Here the case of the Olin Foundation, as detailed by John J. Miller in A Gift of Freedom, is instructive. The Olin Foundation’s endowment, at its peak, was $118 million. But because the foundation routinely gave between 18 and 20 percent of its endowment in grants, it ensured that the foundation would be as influential as one whose corpus was four to five times as large.
One final point. It is true that, more often than not, the betrayal of donor intent takes place when liberals take control of foundations founded by conservatives, as happened with the cases of John D. MacArthur, J. Howard Pew, Andrew Carnegie, and Henry Ford. I know of no case where a perpetual foundation created by liberals was taken over by conservatives.
University of Oregon law professor Susan Gary declares that because the foundations I critique were created by “men who made their money through capitalism and who strongly believed in capitalism, the projects supported by the foundations should support capitalism.”
No. The problem with the Carnegie Corporation of New York is not that it does not support “capitalist” ideas, but that it does not support Andrew Carnegie’s ideas, and Andrew Carnegie was a forceful and vigorous defender of free enterprise. The Carnegie Corporation was not founded by Mr. Moneybags. It was created by a man who had clear and precise political views—beliefs the Carnegie Corporation betrays every day.
Donor intent applies to all donors. In fact, the most forceful supporters of term-limited foundations in our time are Bill Gates, Warren Buffett, and Michael Bloomberg, none of who can be considered men of the right. I don’t care much for Buffett’s politics, but in leaving his wealth to his trusted friend Bill Gates, who has declared that the Gates Foundation will spend itself out within thirty years of his death, Buffett made a very wise decision.
Studying the lives of such great philanthropists as Ford, Carnegie, and MacArthur will provide valuable lessons to future generations of donors. The lessons are these: make your instructions as explicit as possible and make sure your foundation spends itself out within thirty years of your death.
Moreover, the study of donor intent restores the role of the individual donor to his or her proper place in philanthropic history. The most recent overview of philanthropic history in the U.S., Olivier Zunz’s Philanthropy in America, is an institutional history that begins with the premise that individuals contribute little or nothing to the story of American foundations. Such an approach is not only inherently boring (Zunz’s story is one of aged foundations slowly calcifying) but fundamentally misguided.
Historians who study donor intent need to pay careful attention to what donors say. They will discover that a surprising number of great philanthropists were excellent writers. Andrew Carnegie, for example, was an eloquent defender of liberty. J. Paul Getty could only write about himself (the man wrote four autobiographies, one posthumous) but he was a lively and graceful writer.
The burden of proof is on the defenders of perpetual foundations to explain why perpetuity is the best method to ensure that a donor’s wishes are honored. I believe this is a battle that the champions of donor intent are slowly winning.