Foundations Often Yield to ‘Mission Drift’
established, problems began to
arise. First, orphanages were no
longer the preferred way to deal
with the problem of parentless
children, and racial and gender
restrictions were no longer socially acceptable.
Those issues could be solved
by a tradition called cy pres—
the doctrine that allows small
modifications to charitable
trusts to fulfill the donor’s larger charitable intent. In the Hershey case, the purpose of the
Continued from Page 29
As a society,
we need to rethink
whether we want
to perpetuate this
myth of eternity.
trust was changed from an orphanage to a residential school
and the race and gender restrictions abolished.
However, another problem
could not be so easily solved.
The trust was originally financed with Hershey stock valued at $60-million—already a
large amount. But by 2008 this
trust had grown to more than
$8-billion.
The school has had a hard
time spending all of the trust
income on a residential institution for a limited number of
students. By 1999 the trust had
built up a reserve of more than
$850-million.
The Hershey Trust made a
request to the court to devote
$75-million to create an insti-
tute to train teachers to edu-
cate needy children. However,
alumni of the school objected,
and the court rejected the peti-
tion and said, “Our discretion is
not unfettered and if exercised
must be within the limits ap-
proximating the dominant in-
tent of Hershey.”
While the trust assets today
are still worth more than $7-
THE CHRONICLE OF
PHILANTHROP Y
billion, the school has no plans
to grow larger than 2,000 students.
It is hard to imagine that if
Milton Hershey—from all accounts, a smart businessman
who was interested in using his
wealth to help poor children—
could have seen the future that
he would have been happy to
see the limited way in which his
vast wealth was being used.
While it is tempting to think
that the Hershey Trust case is
anomalous, in fact, the problems of perpetual private charitable trusts over time have been
fairly common.
For trusts that are too small
to have their own boards, there
is the problem of orphan trusts.
Those are charitable trusts
in which the donor and family
members are no longer involved
and a financial institution is the
sole trustee. In 2007 The New
York Times published an exposé of how these trustees often
use the assets in these orphan
trusts to fulfill their own charitable goals rather than those of
the donor.
Charitable trusts that are
very large are subject to another set of potential problems.
The Bishop Trust in Hawaii is
just one of several examples in
which large charitable trusts
have been subject to fraud and
corruption. Trustees were paying themselves annual salaries
of nearly $1-million each, and
the situation got so bad that
the Internal Revenue Service
threatened to revoke their tax-exempt status if they didn’t replace all the trustees. More recently, the trustees of the Hershey Trust have been subject to
investigation for using trust assets to purchase a golf club at
three times its assessed value,
which happened to benefit at
least one of the trustees.
Even where there is no clear
malfeasance, valuable resources
naturally attract attention.
Although Albert Barnes did
all he could to keep his vision for
his art to remain at his home in
Merion, Pa., it is not surprising
that the value of the art—both
financially and historically—re-
sulted in the assets eventually
being transferred to a down-
town Philadelphia location.
Many charitable
organizations move
from the original
vision of their
founders.
signed to produce greater good
today.
As a society, we need to rethink whether we want to perpetuate this myth of eternity.
Perhaps it is time that we
abandon the idea that foundations can live forever and require them to spend all their assets within a certain time after
their founder’s death.
In the meantime, donors and
their estate planners should
think seriously before adopting
perpetual life. If 50 years after
death is good enough for Warren Buffett and Bill Gates, perhaps it can work for the rest of
us as well.
Ray D. Madoff is a professor
at Boston College Law School
and author of Immortality and
the Law: The Rising Power of
the American Dead.
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Join The Chronicle of Philanthropy
and the National Center for Family
Philanthropy on November 10 for a
teleconference with two leaders of
foundations that have deliberately
chosen to shut down after a set time.
Gara LaMarche (right), head of Atlantic
Philanthropies, and Lenore Hanisch,
whose family created the Quixote
Foundation, will discuss the key issues
involved in setting limits on foundation
lifetimes.
For more, go to:
http://philanthropy.com/live
Partisan Politics Could Pose
‘Toxic Threat’ to Foundations
TO THE EDITOR:
William Schambra is a friend
and my foundation supports his
Bradley Center’s stimulating series of philanthropy forums, but
he is at it again (“Grant Makers’
Support of Obama May Haunt
Them After Midterm Polls,”
October 21).
His attack on Grantmakers in
Health for its efforts to assure
the successful implementation
of the recent health-care legislation is troubling in one respect
and wrong in another.
What is troubling is the barely veiled threat that if Republicans regain control of one or
both houses of Congress, progressive foundations working to
advance public-policy goals like
health care and immigration
reform might find themselves
in the cross-hairs of investigating committees. That would be
a disturbing extension of the
toxic political environment,
and, if it comes to pass, hypocritically partisan, as some of
the best examples we have of legitimate foundation support for
public-policy change come out
of the conservative side of philanthropy—as, for instance, the
Bradley Foundation’s promotion
of school-voucher programs.
What is wrong is that Mr.
Schambra saddles up again on
his favorite hobby horse, the
ostensibly elitist “progressive”
movement. That attack is over
100 years old, but to the extent
he portrays the recent health-care reform as a triumph of unaccountable experts over ordinary people, Mr. Schambra puts
populism on the wrong side of
the argument.
Powerful financial interests
poured many millions of dollars
into stopping comprehensive
health-care reform, but only
the power of ordinary people
was able to overcome them and
achieve an expansion of the social safety net.
Atlantic was proud to support the leading organizing effort of this kind, Health Care
for America Now, which brought
together more than 1,000 associations and millions of individuals, from churches to labor
unions to civil-rights and minority groups, in a bottom-up effort to bring about vital change.
Such change is consistent with
voters’ preferences: Polls indicate that, despite a sustained
misinformation campaign, after learning about the actual
benefits, a majority of voters
supports the important reforms
that will make coverage more
secure and more affordable.
If Mr. Schambra isn’t aware
of the grass-roots nature of the
health-care effort, it may be
that he is spending too much
time watching Fox News. The
Tea Party protesters at town-
hall meetings were often out-
numbered by health-care sup-
porters, but you wouldn’t know
it from the media coverage.
New effort aims
to foster diversity
TO THE EDITOR:
The Chronicle’s recent special
section on diversity (September
9) provided an important snapshot of efforts to build diverse
nonprofits. There’s at least one
more piece to the story, and it’s
an especially promising one.
Over the last year, a coalition
of foundations and philanthropy organizations have joined
forces in creating an initiative
to increase diversity, inclusion,
and equity in philanthropy. The
partnership is unprecedented—
more than 17 organizations,
with connections to thousands
of foundations. It heralds rising
recognition of the challenges
you reported and a new will to
do something about them.
We call the effort “D5,” as
we’re aiming for big diversity
changes in the next five years.
By the end of the initiative, we
envision these outcomes:
n New foundation CEO, exec-
utive-staff, and trustee appoint-
ments will more closely reflect
U.S. demographic trends.
n Annual funding for diverse
communities will increase.
n Foundations within our
membership will take meaning-
ful action to address diversity,
equity, and inclusion issues in
their organizations.
n Philanthropy will have the
research capacity to be more
transparent about progress on
diversity, inclusion, and equity.
D5 is not the first such effort
in philanthropy. We join other
groups that have long worked to
promote a more diverse, inclusive, and equitable sector. Yet
even the most seasoned of D5’s
leaders—and together we’ve
logged well over 100 years in
organized philanthropy—sense
something different now.
We know philanthropy must
speak with a more unified voice
on diversity for these efforts
to gain real traction. We see a
critical mass of donors coming
to the table. And we believe the
time is right to take a hard look
at diversity issues in our sector—and make some serious
changes happen.
STEPHEN B. HEINTZ
President
Rockefeller Brothers Fund
New York
ROBERT K. ROSS
Chief Executive Officer
The California Endowment
Los Angeles
STERLING K. SPEIRN
Chief Executive Officer
W.K. Kellogg Foundation
Battle Creek, Mich.
