Andrew Carnegie’s The Gospel of Wealth may have urged other wealthy individuals not to die rich, but, as we have seen, he didn’t quite put his money where his pen was. Here was a philanthropist of great vision and irresistible passion, whose actions manifest the fact that he gained deep experience over three decades in making thousands of decisions about whether, when, and how best to give, so when he abruptly decides to change course, stops donating in the present, and instead reserves about a billion dollars in present value to benefit the future, that action should demand our attention and perhaps respect.
The choice that Andrew Carnegie faced is not different from the one confronting today’s rich, many of whom are moved by the urgent needs of the present that the public and social media highlight 24/7. Many individuals have imposed limited lives on their foundations, and others have publicly declared a goal of giving their wealth away during their lifetimes or soon thereafter. As of the end of 2015, Duke University’s Center for Strategic Philanthropy and Civic Society had identified some 20 donors and foundations that were in the process of giving away everything or that had just finished doing so, and more than 50 others that had spent down in years past.1 (You’ll find a list of foundations publicly committed to a limited life as of 2016 in Appendix A.) It is important to note, however, that other institutions may be spending down with no fanfare—or even without having made a firm decision to do so. As their decisions become known and as new donors and institutions make the choice, the limited-life club is certain to grow.
Let’s consider some of the reasons that philanthropists are more often now choosing to deploy their philanthropic wealth during their lives or shortly thereafter.
Those who have decided to give away their wealth now rather than later fall into two discrete groups—the younger and the older. Let’s begin with the first group and turn later to the second. The younger rich are mostly in their 30s and 40s—a stage of life considerably earlier than that at which most of the great philanthropists of the past were making their mark. These young philanthropists may be eager to replicate in the civic sector the rapid, risk-taking, high-stakes quest that characterizes the still recent years of their early wealth accumulation. Some might be tempted to describe them as “cocky,” but I do not—indeed, emphatically not—because the motivations to which they attribute their philanthropic spending decisions are almost always altruistic, idealistic, and, surprisingly, even marked by humility, compared with when the same youthful tycoons describe their commercial and financial successes.
That is not at all to suggest the total absence in these donors of the same competitive drive that marks their for-profit pursuits. With them, however, I am inclined to believe that they see their competitors in philanthropy not primarily as their generational peers but as the well-established multibillion-dollar endowed foundations—the ones that can expend huge amounts of money while paying out just 5 percent of their assets each year. Perhaps we should call this “the giving-while-living-David vs. the 5-percent-Goliath” phenomenon. Many of those who have announced their intention to spend their wealth during their lifetimes will likely end up spending more each year on any given initiative than all but a few of the largest foundations. Because they are spending, or planning to spend, much more than just the earnings on their capital each year, and because they sometimes concentrate their spending on just a few areas of need, their annual outlays in any given field may match or exceed those of huge institutions that preserve their capital by donating only 5 percent of it per year. The desire to make yearly contributions on this scale may well be part of those donors’ motivation for concentrating their philanthropy within a limited time.
Immediate results are an assumption of this generation. Most have not known a time without personal computers, e-mail, Internet (powered at ever-increasing speeds), cell phones, social media, streaming live video, movies on demand, and overnight delivery. Perhaps this mindset, this way of life, drives their view of giving and the expectation for results.
Moreover, as most of those donors are comparatively young, they are energized by the entrepreneurial successes that have helped them achieve unprecedented wealth often at unprecedentedly youthful ages. They are almost always competitive by nature, or they would not likely have amassed so much wealth so swiftly. Spending more than many of the largest foundations would be a way for these individuals to make the statement that they belong in philanthropy’s big leagues. Indeed, many of them have already chosen to become members of the Buffett–Gates Pledge, which of course none of the perpetual foundations are eligible to join, as the Pledge is exclusively for living donors, not for any foundations they or others may have chosen to create.
For all these reasons, I wonder whether the competitive drive of the start-up impresarios may be part of what is pushing them to spend now and also their decision to announce now that they plan to do so over a lifetime.
Most of the very wealthy young or youngish donors who are considering spending down their philanthropic assets come from the venture capital, start-up, high-tech, and/or finance arenas. It may be relevant, therefore, to think of spending down as a form of venture philanthropy and then ponder the differences between it and venture capital.
One of the most important analogies between the two fields deals with assumptions about risk. Venture capitalists report that they are successful if only one or two out of every ten investments greatly succeed. Indeed, their business model is based on that success ratio. Christine Letts, William Ryan, and Allen Grossman underscored this in their influential 1997 Harvard Business Review article, “Virtuous Capital: What Foundations Can Learn from Venture Capitalists.” They noted that achieving the one or two successes—what they call “moon rockets”—is essential for the survival of a venture fund, and consequently the fund managers tend to take a keen interest in the management and organizational quality of the companies in which they invest. They need to make certain that the most commercially viable ideas are piloted astutely enough to help them escape gravity when their time comes to soar. Or, as the authors put it: “If a [venture capital] firm has too many project failures, future investors may be scared off and the venture capital fund itself may fail. It is in response to those risks that venture capital firms have developed many of their organization-building skills.”2
Moreover, the moment of success for venture capitalists comes not in the very long run when an enterprise proves its full potential but at an earlier stage when the investor can reap some form of “take-out”: when the emerging company can be sold to an eager acquirer, absorbed in a merger, or sold to shareholders in an initial public offering. Venture capitalists may be patient investors but with limits. They are not typically permanent owners. Thus, limited and even close-at-hand time horizons are a central part of the venture capitalist’s approach to business. These and other comparisons between venture capital and philanthropy that Letts, Ryan, and Grossman described in their article suggest to me the usefulness of making a similar comparison between venture capitalists and spend-down philanthropists.
Even if a time-limited foundation does not think of itself as practicing “venture philanthropy” in the sense that that phrase has come to be understood, the foundation must nonetheless bank, like a venture capitalist, on a looming day of reckoning when the success or failure of its investment will be determined. For philanthropists, however, there is no comparable possibility of a “take-out” through an initial public offering and little chance of a successful merger with another nonprofit. (The philanthropic graveyards are full of bungled mergers; successes are the rare exception.) In addition, for most nonprofits to reach scale requires a continuous infusion of more and more philanthropic dollars; only the tiniest number ever earn enough revenue to generate their own growth capital. Finally, a take-out by the most common source of large, sustained support—government—requires strong, reliable, objective evidence of success in achieving an organization’s stated purposes. Even then, the likelihood of government funding is at the mercy of political winds. Therefore, if eight or nine out of every ten “big bets” by spend-down donors fail or are left orphaned on the day the “big bettor” leaves the table, and if the successful one or two must achieve a take-out by continuous infusion of other philanthropic, government, or fee-for-service dollars, the risks inherent in such bets are very high indeed. If all the spend-down donor’s dollars have been invested in a bundle of such gambles, the portfolio must be so high risk at the beginning as to discourage any but the most high-rolling donors from betting the farm on them. In other words, this approach to philanthropy calls for precisely the kind of personality on which the meteoric successes of Silicon Valley and Wall Street tend to be fueled.
The older rich, on the other hand, are more often motivated by a risk-averse fear of what might happen to their wealth after they die if they (or their hand-picked trustees) don’t spend it sooner rather than later. They are more focused on avoiding the possible deployment of their hard-earned philanthropic dollars on purposes in which they are uninterested or, worse, that they oppose. Whether said obliquely or directly, the basic message here might be construed as “If I cannot take my money with me, I am going to make sure I have chosen, and am personally attached to, every recipient who gets it!” That anxious and mistrustful attitude is quite different from what Andrew Carnegie espoused in The Gospel of Wealth, where he stressed the benefit of giving away one’s wealth while living as enabling a donor to bring to bear in his giving the same talents and insights he had used in making his wealth in the first place. He wrote that there is “no grace” in such gifts to the public at one’s death, elaborating that “men who leave vast sums in this way may fairly be thought men who would not have left it at all had they been able to take it with them.”3
The spend-downers who are motivated primarily by such mistrust of their philanthropic successors strike me as almost as “graceless,” in Carnegie’s terms, as those who hold onto their wealth until they die, while the non-spend-downers manifest a praiseworthy nobility of spirit in giving for the benefit of future generations, even if such future giving may not accord with how the donors would have preferred to see their philanthropic wealth spent. As in many other matters, Andrew Carnegie pointed the way for others to leave their wealth to perpetual foundations “gracefully,” when he wrote as follows (occasionally using his idiosyncratic innovative spelling) to the trustees of the Carnegie Corporation of New York:
My desire is that the work I hav been carrying on, or similar beneficial work, shall continue during this and future generations. Conditions upon the erth inevitably change; hence, no wise man will bind Trustees for ever to certain paths, causes or institutions. I disclaim any intention of doing so. On the contrary, I giv my trustees full authority to change policy or causes hitherto aided, from time to time, when this, in their opinion, has become necessary or desirable. They shall best conform to my wishes by using their own judgment.4
On the other hand, the mistrust of successors that some “giving while living” donors exhibit is the result not of inadvertent gracelessness but rather of stubbornness. It may arise out of the deeply rooted, experience-based belief that “Over my long number of years, I have learned best how to tackle the social problems I care most about, and I sincerely resist having others, who don’t have the benefits of my experience, substitute their judgment for mine in distributing my philanthropic assets.” In this instance, I am tempted to applaud these donors’ stubbornness in wanting to benefit society as they see fit, based on their lifetime of experience, rather than risk the possibility that the wealth that they have amassed might be spent in ways that they regard as ineffective or wasteful.
Zalman Bernstein, the principal founder of what is now the investment management firm AllianceBernstein, is an exemplar of such views, and they clearly influenced him when he established the AVI CHAI Foundation. His devotion to the strengthening of traditional Judaism led him to choose as the foundation’s trustees several distinguished and deeply trusted friends whom he knew to share his values. Like others who have followed the same course, he had often expressed views echoing those of John Olin who, as we saw earlier, had been profoundly influenced by his understanding of what occurred with Henry Ford II and the Ford Foundation. According to at least one of Bernstein’s associates, it was not the Henry Ford II example that troubled him the most, however, but the example of the trustees of the Buck Trust, which was in the news at the time Bernstein was creating his foundation. In that case, trustees pressed a California court to allow them to depart from the express conditions of Beryl Buck’s will, arguing that changed circumstances had made it imprudent to follow the deceased widow’s instructions to the letter. The court agreed to a change in terms but imposed its own solution, different from both the will and the plan recommended by trustees.5
Nonetheless, while Bernstein, during his lifetime, may have considered the possibility of spending his foundation down for such reasons, he himself made no decision to do so. As Bernstein was known to be strong willed, his reluctance to specify spend-down as the course of his foundation may well suggest that he was genuinely ambivalent about taking such a course of action, perhaps because he believed that the cohesion and harmony of the Jewish people that he hoped for was not something that could be ensured in a few decades. We know only, however, that he did not make the decision to spend down the AVI CHAI Foundation while he was alive nor did he make an express decision to keep it perpetual but left that question to his trustees. After he died in 1999, they made the decision and announced in 2005 that the AVI CHAI Foundation would go out of existence at a date certain, first specified as the end of 2027, the 100th-anniversary year of Mr. Bernstein’s birth, but subsequently fixed to be December 31, 2019. It is worth noting that the 20-year window of AVI CHAI’s spend-down from Mr. Bernstein’s death in 1999 to his foundation’s end of grantmaking in 2019 has recently become the window of choice for other donors, including Bernard Marcus’s foundation (originally to be given 30 years of life after his death) as well as the giant Bill and Melinda Gates Foundation (which recently reduced its window of life from 50 years after the death of the survivor of Bill and Melinda to 20 years thereafter).
While Zalman Bernstein did not formally limit the life of his foundation, most foundation creators who were known to have deep concerns about the likelihood that their philanthropic successors would be faithful to their wishes have not hesitated to make the decision to spend down. One of those is Bernard Marcus, the cofounder of The Home Depot, who established The Marcus Foundation, based in Atlanta. Marcus is a visionary philanthropist with varied interests, which has enabled The Marcus Foundation to create an impressive track record in a number of fields. The Marcus Foundation gives away about two-thirds of its annual budget for biomedical research, prominently including research and advocacy on autism. Another important institution founded by Marcus is the Israel Democracy Institute, which the foundation has supported for 25 years. A final example is the breathtaking Atlanta Aquarium, which Bernard Marcus both envisioned and supervised the process of building. At some point after establishing his foundation, he decided that it would last for only 30 years after his death, then he later changed that to 20 years. He took the added step of developing a statement of guidance for his successor trustees, who include his wife and two of their children as well as close friends and professional associates, in which he specified not only what he intended the foundation to support during the years remaining after his death but also the objectives that he instructed the trustees not to support. He made the spend-down decision because he wanted to ensure that his wealth would not go for initiatives that he didn’t care about.
Like Zalman Bernstein and Bernard Marcus, many donors choose to limit the life of their foundations not only because they believe their lives and experience have given them a unique purchase on how to pursue their philanthropy but also because they believe that future trustees could put their funds to use in ways that would disappoint them. There are two different ways in which this disappointment might play out: (a) through misunderstanding, carelessness, or poor memory, future trustees may come to misinterpret or ignore a donor’s wishes; or (b) donors may, during their lifetimes, find themselves regretting their own choices about the way their wishes were formulated and conveyed, or the way their successor trustees were chosen. These are not mutually exclusive; both circumstances might well occur at the same foundation. But the two are separate problems, too often lumped together.
It is important to distinguish between the understandable human reluctance to “lose control” over one’s philanthropy or foundation, along with the accompanying remorse for having done so, and an actual drift away from donor intent. One can simultaneously regret losing control and nonetheless agree with the substance of what one’s foundation has done. For example, in my interview with Lord Jacob Rothschild for this book, he recalled a meeting with David Rockefeller Sr. some years ago, in which Rockefeller described the decisions by his grandfather John D. Rockefeller Sr. and his descendants to give up control of the governance of The Rockefeller Foundation as a “great mistake for both the family and the Foundation.” Yet he said that he nonetheless substantially agreed with the foundation’s record of activity.6
A quite different example of donor remorse is vividly described in Conor O’Clery’s biography of Charles Feeney, The Billionaire Who Wasn’t.7 In the founder, donor, and long-time trustee of The Atlantic Philanthropies, one can find a widely admired major foundation creator, then still a trustee of the foundations he created, who was not satisfied by simply expressing “donor remorse” over having let go of his philanthropies but acted vigorously to retake the reins and force his foundations to change course. At the peak of his dissatisfaction, he asserted vehement opposition to some of what his foundations were doing and relentlessly acted to force out the then CEO of the foundation as well as some of the trustees who were supporting that CEO. The fact that he had once personally endorsed the selection of the CEO and trustees in question may well have added to his feelings of remorse.
The attitude of Henry Ford II, as noted earlier in Part Two, Chapter 5, is midway on the spectrum between that of the Rockefellers and that of Charles Feeney. In Ford II’s oral history interview commissioned by the Ford Foundation in 1973, referred to in Part Two, three years before he resigned from the Ford Foundation Board of Trustees, he simultaneously manifested “donor’s descendant’s remorse” and endorsed almost all of the major initiatives that the foundation board and presidents had undertaken.
For the purposes of this discussion, the significant thing about these “donor’s remorse” cases is that the life expectancy of the foundation played no role in either the problem or its possible solutions. Neither the perpetuity of the Rockefeller and Ford Foundations nor the limited life of Feeney’s Atlantic Philanthropies prevented the founders from regretting a forfeiture of control over the institutions they or their forebears had created. The solution, in their cases, would have lain not in lengthening or shortening the lifespan of their foundations but in taking better care to clarify their wishes and to preserve their own role in seeing those wishes implemented.
In my interviews for this book, as well as in numerous conversations with parents with sons and daughters under 30 years of age, I often heard many wealthy donors express reluctance about imposing the burden of philanthropic wealth deployment upon their children. In an interview in 2015, the founders of a family foundation described it to me this way: “If one’s children are young, their parents fear burdening them with the responsibility of deploying philanthropic dollars. If they are older, parents tell us that their children are not interested in what their parents are doing with their philanthropic dollars.”8
Parents often spoke to me of finding their children resistant to their encouragement to devote time and energy to their parents’ foundations. Other parents have told me that their children’s lack of interest in participating with their parents in allocating philanthropic dollars had convinced them to divide up their funds into separate foundations for each of their children. Usually, they concluded that their children simply did not share the philanthropic commitment to the same objectives as their parents and that it would be a waste of precious charitable dollars to give part of their wealth to their progeny under those circumstances.
My impression is, however, that such uninterested or philanthropically resistant children are outliers rather than the norm. Parents with multiple children who have systematically sought to engage some or all of their children with them from an early age in their family foundations and/or informal philanthropic giving have often succeeded in developing enthusiasm for philanthropy in their children along with the skills to give carefully and wisely. The key to success is philanthropic involvement of children with parents from an early age, so that the children can personally experience the greater joy of giving to others that their parents feel before they themselves become obsessed with and addicted to the countless, dare I say “selfish,” digital and other distractions that attract young people to pour their time into other diversions.
Over the years, the Duke students who have taken my course on philanthropy report that their earliest involvement in charitable giving took place alongside their parents, who personally cooked or served food in soup kitchens, delivered gifts to poor families at holiday times, or were engaged in varying service activities of their churches, synagogues, mosques, and community organizations to which they regularly volunteered time. It is also the case that parents who prime the philanthropic interests of their children by encouraging them regularly to give away part of their allowances or earnings to the needy succeed in hooking their children with the inherent satisfaction of having done something good for others. The most important thing that parents can do for their children is to model, themselves, the behavior in which they desire their children to engage.
Once again, the choice of whether a foundation should be time limited or perpetual is a poor proxy for the more intimate choice of whether to involve one’s children in philanthropy or not. If children are reared in a philanthropic life, then taking their place as adults in an ongoing foundation will be a privilege for them, not a burden. If they are not, then watching their parents draw their family foundation to a close could merely reinforce the impression that giving is somehow an antiquated undertaking, the preoccupation of the old, a vestige of an era whose time has passed. Either way, the key choice is about how the children are introduced to philanthropy, not about the life expectancy of the foundation.
The executive directors of most major private foundations, endowments and other nonprofit institutions are dedicated, first and foremost, to preserving the resources and reputations of the institutions they run. This is achieved by creating layers of bureaucracy to oversee the resources of the institution and prevent it from taking on too much risk. As a result, many large private foundations become slow, conservative and saddled with layers of permanent bureaucracy, essentially taking on the worst characteristics of government. Hacker philanthropists must resist the urge to institutionalize and must never stop making big bets.
—Sean Parker, “Philanthropy for Hackers”9
These words by Sean Parker, which sound like echoes of similar charges made almost a century ago by Julius Rosenwald, embrace the conventional wisdom expressed about perpetual foundations by their countless critics, and, like much conventional wisdom, it is mostly, indeed cynically, wrong. Moreover, it is often motivated by ideological differences with the kinds of programs supported by particular perpetual foundations rather than with the idea of perpetuity itself. Are there any foundations the behavior of which jibes with Parker’s description? Of course there are. In The Foundation: A Great American Secret,10 I devoted a chapter to discussing the pathology he describes, but the rest of that book explored the countervailing fact that the overwhelming number of perpetual foundations are distinguished by their willingness to take risks, by their embrace of the very kind of “big bets” Parker espouses, and by the countless successes in serving the public interest they already have achieved to their great credit.
I have no doubt that Sean Parker is speaking out of ignorance of what those foundations have achieved and is parroting what he has heard from his contemporaries and friends. His quotation suggests that he is motivated primarily by an undiscriminating anti-institutional ideology. Nonetheless, he is not the only person who expresses those views. They clearly underlie much of the criticism that the Philanthropy Roundtable regularly levels against perpetual foundations. But that doesn’t make such criticism credible, because the conservative ideological lens through which the Philanthropy Roundtable views most perpetual foundation initiatives on today’s social policies is well known. Its logic is pretty simple: most perpetual foundations tend to support liberal social policy initiatives. Therefore, we and our fellow conservatives are justified in disparaging perpetual foundations and discouraging donors from creating them.
While it is certainly true that perpetual foundations are not subject to any significant external accountability-enforcing discipline, it is equally true that instances of perpetual foundations being “slow, conservative, and saddled with layers of permanent bureaucracy”11 are rarely uncovered. This is all the more surprising in an age of ever-increasing transparency, given the plethora of blogs, social media, and other forms of digital communication. Moreover, virtually all of the largest perpetual foundations steadily and regularly achieve impressive results in their grantmaking, and many of the midsized and smaller foundations do so as well in their substantive focuses or geographical catchment areas.
It is also important to note that the overwhelming proportion of perpetual foundations have no staff members. They are trustee-led and trustee-administered. By definition, a staff-less foundation may well be stodgy or conservative but, being without any bureaucracy, logically cannot be called bureaucratized. Moreover, even the largest foundations vary widely in the number of staff they have. The Robert Woodruff Foundation in Atlanta, for example, shares a common administrative staff with several other foundations. Together, the Woodruff, Whitehead and Evans Foundations possess assets of $10.1 billion and make $400 million in grants a year with only 12 staff members. That does not fit any reasonable definition of bureaucratization.
However, no one can deny that, once a founding donor is no longer present on a perpetual foundation board, such foundations’ lack of any effective accountability enforcement does inevitably leave them vulnerable to the possibility of laziness and the lack of urgency. But being vulnerable to laziness or a lack of urgency is hardly the same thing as being lazy or actually lacking urgency. The serious mission commitment of most foundation program officers, most trustees and directors, and most foundation CEOs; the much greater transparency of most foundations today; and the most extensive utilization of social media sites by foundations and their staffs to engage in interactions with foundation stakeholders—all of those factors—tend to mitigate any tendency toward laziness and lack of urgency. Moreover, as I have underscored earlier in this book, the fact that many foundations today, especially perpetual ones, are increasingly engaging in active partnerships with large and small grantees and are routinely involved in significant continuing collaborations with multiple other foundations unquestionably ties them closely to continuing stimulation from the outside, which is bound to counter any tendency toward passivity. Finally, the fact that virtually all of the large perpetual foundations continually produce results that receive acclaim by countless objective outsiders and observers speaks much more loudly than does the mere possibility that such foundations might be vulnerable to laziness and other bureaucratic behavior.
Another variation on the fear that a lasting endowment will eventually come to no good is the belief that, sooner or later, either the original intent of the funds will be abandoned or that intent will itself become obsolete as times change. Julius Rosenwald expressed the sum of these fears in 1929: “The history of endowments abounds in illustrations of the paradoxical axiom that while charity tends to do good, perpetual charities tend to do evil.”12 We have already encountered, in earlier sections, the fear that donors’ wishes will somehow be violated sooner or later and that institutions will, over time, become hidebound and inept. But what about obsolescence? Isn’t a perpetual endowment bound to become irrelevant in some distant future?
Once upon a time, especially in 19th-century England and early 20th-century America, newspaper editors seemed to have relished writing articles about the existence of permanent endowments established to further purposes that were made obsolescent by changing times. One sees those articles rarely today, although legal proceedings do occur from time to time aimed at rectifying any obsolescences.
Rosenwald also bemoaned the purported absence in US law of any avenues for repurposing an obsolescent endowment:
No such legal safeguards to keep vested benefactions from degenerating into a dead loss exist in the United States. It is almost impossible by law to change a benevolent program planned by a person long dead, even though its obsolescence is unquestioned. Our courts have again and again refused the applications of trustees to revise the purposes of a useless endowment in order to meet a current need. The charters of foundations are considered as contracts with the states that granted them, and the attempt to change any provision of a foundation is usually construed as an abridgement of a contractual obligation, which is prohibited by the Federal Constitution.13
Again, this is simply not true. There is a long line of cases in the federal and state courts affirming the capacity of Cy Pres to be used by judges in repurposing charitable foundations and other endowments when their original purposes become obsolete. (Cy Pres, pronounced “see-pray,” is the legal doctrine by which courts may amend the terms of a trust when the testator’s original purpose is no longer possible or practicable.)
Such endowments, both in England and the United States, can today be easily cured by asking a court for a ruling to modify their purpose under the doctrine of Cy Pres. For a century or more, it has also been possible in England for the Charities Commission to repurpose such endowments. Rosenwald seems to be generalizing from what was, and may still be, true regarding some perpetual endowments that are administered as endowed funds within the endowments of universities, colleges, hospitals, and other freestanding nonprofit entities. However, I know of no freestanding perpetual philanthropic foundations in the United States that have been alleged to constitute “a disheartening chronicle of misuse, disuse, and abuse as to give a man pause before he contemplates founding one.”14 While Rosenwald’s purple oratory rings poetically, its reasoning resounds pathetically false, indeed totally uninformed by existing law.
Some foundations that have chosen to spend down are doing so not because they cannot figure out how to allocate their assets for the public good but because their trustees have become weary of spending the time to put those quasi-public resources to effective use. One sees this phenomenon clearly in many of the smaller family foundations, where, plainly put, the family members have lost interest in devoting their limited time and energy to distributing wisely a limited quantity of charitable resources.
In some of these cases, one is tempted to believe that the foundation simply has the wrong trustees and that recruiting more astutely would soon reinvigorate the board’s flagging energies. However, it must be acknowledged that in some families, as the generations pass and the family grows too large or too widely dispersed to share any common interest, the hope of administering a coherent foundation may genuinely be fading.
In 2013, philanthropy advisor Alice Buhl reported on the case of the Irwin Sweeney Miller Foundation, whose third-generation family trustees decided to expend their full $25 million endowment and bring the foundation to a close. Their main reason was that the foundation was dedicated to their grandparents’ small hometown of Columbus, Indiana (population 50,000), and only one of the grandchildren still lived there; none of the others had any expertise in its local affairs. Nor were all the grandchildren especially close to one another, geographically or, in some cases, even emotionally. Disputes among board members were becoming more common, and the endowment was not large enough to command the diligence and imagination of the family members. Though weary of the effort, they wanted to ensure that the money was put to a use that fully respected their grandparents’ intent, so they made a number of very significant, creative final grants for economic and cultural development projects in Columbus and then went their separate ways.15
This was a responsible solution to a genuine problem. The alternative would have been to perpetuate a grudging, desultory, perhaps even divisive administration of what was meant to be an energetic and visionary enterprise. However, as Alice Buhl notes in her conclusion, the problem was not inevitable. Although the previous generations had been careful to instill the values of giving and volunteering among their children, members of the third generation had not actually been “involved in significant ways in the foundation.… When the time came for their leadership in the foundation, the siblings had very little experience at working together.”16 A more concerted effort to build the foundation into the routine of family life might have preserved it for another generation or more.
It is conventional wisdom that, in principle even if not a widespread practice, one of the cardinal obligations of both perpetual and life-limited foundations is to pioneer solutions to public problems that government itself would be loath to undertake because of their inherent risks. Indeed, that assumption is one of the primary rationales offered by wealthy individuals, foundations, and observers of philanthropy for giving-while-living and spend-down foundations. The hope is that an intense, short-term burst of philanthropy in some field of need would lead to pioneering experiments that reveal what works and what doesn’t work, thereby reducing the risk to government in implementing a solution to the problem being focused upon.
In the case of limited-life foundations in which the donor/founder is still active, his or her gutsiness might well set a low bar (or a large appetite) for risk, and the donor/founder will then be around to enjoy the applause if the experiment works out well and can take the heat if it doesn’t. But after the donor/founder has left the scene, which is eventually the case with perpetual foundations, choosing a high-risk course of action becomes more difficult, as there may then be no obvious trustee around at crunch time who is sturdy enough to take the fall.
That suggests that when the donor of a perpetual foundation dies, whatever possibility there might have been for high-risk grantmaking will likely be diminished. That point has been eloquently made by Bernie Marcus of The Home Depot and The Marcus Foundation: “As a living donor/chairman of a foundation, I can and do take significant risks in my philanthropy. After I die, my foundation will likely be unable to emulate my risk-taking approach to philanthropy because boards of trustees without living donors usually don’t have anyone with the same degree of moral and legal authority necessary to take big risks.”17
It is impossible to disagree in principle with Marcus’s point. Clearly, a foundation with living donors, if they are truly inclined to make big bets on high-risk grants, has a much freer hand to take on significant risk. But it is not a foreordained conclusion that successor trustees will not follow in the donor’s footsteps. If the successor trustees are carefully chosen, as were those of Andrew Carnegie, Alfred P. Sloan, and Robert Wood Johnson, and if the founder has blazed a trail for high-risk grantmaking that can set an example for those who come after, the tolerance for high-risk grants need not diminish. Long after Carnegie died, his successor trustees made the decision to try to create a Public Broadcasting System and a National Public Radio for the United States. Decades after the death of General Johnson, the Robert Wood Johnson trustees decided to establish a grantmaking program to diminish teenage pregnancies, to discourage teenage smoking, and to develop strategies for diminishing obesity—all of which are about as high risk as any foundation’s efforts anywhere. And 50 years after the death of Alfred P. Sloan, his successor trustees decided to seed the academic discipline of bioinformatics, as well as to underwrite all-encompassing inventories of all the stars in the heavens and all the creatures that inhabit the seas.
The fact that there was no living donor among the trustees—and therefore no one “to the manor born” who would have to bear the blame if those initiatives did not pan out—did not deter those respective foundation boards from taking the high risks involved. Each founder had chosen trustees who understood well what a risk-taking culture demands, and the founder’s absence on the board of trustees did not deter the successor trustees from embracing high-risk bets at the outset. To create a bold institution with high risk tolerance, it is only necessary to choose astute risk-takers to govern it. Foundations are no different from other organizations in that respect. Goldman Sachs is no less agile in embracing and managing risk today than it was 145 years ago, even without Marcus Goldman and Samuel Sachs to stiffen its spine. Why should the Johnson or Sloan Foundations or any well-governed perpetual foundation be any different?
Indeed, as I assess the risk-tolerance of the largest American perpetual foundations with no living donor involved, I do not see evidence of significant risk-aversion in any of them. And that must be the result of the risk-tolerant culture bred into such foundations by their donors.
Moreover, as discussed in Part One, the ability of a growing number of community foundations, which do not have individual founder/donors on their boards of trustees, to undertake high-risk, controversial initiatives is also relevant here. While it is true that many of those community foundations were not known for taking big risks in the past, in recent years they have been able, because of vigorous boards and chief executives with energy and courage, to strike out in bold new ways and to do so without any obvious trustee present to take the blame for bad judgment or bad fortune.
There is yet one more fear to consider, of real practical concern as well as perhaps more urgency than the other fears discussed—the challenge of how to meet the continuing need for cash with which to make grants, coupled with the equally challenging strategy to generate sufficient growth in foundation endowment value to preserve the foundation’s purchasing power over the long run of a presumably perpetual foundation. As things stand now, there are only two ways to compensate for the lack of the cash income that formerly came from interest on debt instruments. One is to sell endowment assets in bond holdings that no longer generate interest, thereby generating the short-term cash needed, and the other is to sell equities, which, while providing cash in the short run for grants and operating expenses, simultaneously diminishes the equity base that would otherwise be available to grow the foundation’s assets for future needs.
Long gone are the days when investment officers were able to calculate their endowment asset allocations at 40 percent debt instruments and 60 percent equity investments. With such a predictable flow of income from interest on debt instruments to backstop cash needs for grantmaking and other expenses, and with reasonable growth prospects likely in a carefully chosen mix of equity investments, cash shortfalls could be supplied by selling some equities and the remaining increased endowment value would likely guarantee the foundation’s financial strength for the future. Therefore, neither inadequate liquidity nor inadequate growth was likely. As long as interest rates on cash and debt investments remain close to or below zero, however, foundation investment officers will be forced to continue to struggle to generate earnings on their endowments sufficient both to provide the liquidity needed for payments on grants to satisfy the 5 percent minimum annual distributions required by the Internal Revenue Code for foundations and to generate enough asset growth over and above the minimum distribution requirement to ensure the preservation of the foundation’s purchasing power.
James Shulman, Senior Fellow at the Andrew Mellon Foundation, concisely sums up the challenge now faced by foundation investment professionals and foundation trustees:
This [current low-interest environment on debt investments] makes it harder to get the 5 percent return, but since all endowments practice “total return” strategies (whereby the payout is garnered by planned harvesting of assets that have grown, rather than by depending much on interest or dividends), they already don’t really depend on the fixed-income part of their endowment for funds in the way that they used to. But with both lower income from such investments and lower projected growth throughout the worlds’ economies (“the new normal”), endowments are driven to more aggressive strategies (90 percent equities in one form or another) in order to get the “juice” that they need. This can mean more volatility in the short run as they seek the growth they need to outpace inflation, cover their expenses, and achieve their payout target. Those charged with managing endowments are anxious about how hard it will be for them to get returns that enable them to keep growing for the near future.18
The returns on university endowments for the year ending June 30, 2016, underscore the problem faced by all endowments, including those of foundations. Yale University reported a year-over-year increase in its endowment of 3.4 percent, but Harvard reported a year-over-year decline in its endowment of 2 percent, and Duke reported a year-over-year decline in its long term capital pool of 2.6 percent.19
If the current interest rate environment persists for much longer, the likelihood that a foundation’s assets will erode in value over time would certainly constitute a logical reason to decide to spend them to achieve greater social impact in the near term (more assets available now than later, therefore more impact), rather than watch endowment values sink little by little, until spending down is virtually a fait accompli.
Fortunately, for donors and foundation managers struggling to understand their options while satisfying their obligations, Bill Meehan and his colleagues Kim Jonker and Joanna Pratt have developed an online tool to help philanthropists “face future uncertainties by informing various payout-related decisions.” This guidance is available at their website: www.engineofimpact.org. Here is Meehan’s list of some of the questions the website can help answer:
• If we want to remain perpetual, what is the highest payout amount we should target?
• If we hope to remain perpetual and select a payout level accordingly, what are the odds that—due to market volatility—we will not achieve our goal of remaining perpetual and instead will run out of funds?
• If we want to operate for a certain number of years and then terminate, what level of annual payout should we target?
• What impact do market returns have on the longevity of our endowment, at a given payout level? Will we run out of funds if real market returns are 6 percent? 5 percent? When will we run out of funds? What payout level would we need to target in order to not run out of funds?
• If market returns are lower than they have been historically, can we still meet the 5 percent minimum federal payout requirement and remain perpetual?
“Using the Foundation Payout Tool,” Meehan explains, “philanthropists can input simple variables such as real return expectation, volatility of real returns, payout level, and then receive helpful outputs such as the expected termination year, the probability of perpetuity, the odds of running out of funds a given year, expected payout level to achieve perpetuity, the odds of achieving perpetuity at various payout level, etc.”20
In the sluggish financial markets of the early 21st century, the fear of an unintended spend-down—of watching an endowment erode relentlessly despite all efforts to maintain it in perpetuity—is not an unreasonable one. But neither is it necessarily an argument for a deliberate spend-down. Each path presents multiple options, with different combinations of investment and payout policies. Resources like the Meehan-Jonker-Pratt model can help donors and managers think through their choices realistically and find the best route to the goals they hope to achieve.
We are now faced with the fact that tomorrow is today. We are confronted with the fierce urgency of now.
—Martin Luther King, August 28, 196321
In “Burden of Wealth,” Julius Rosenwald writes:
[T]here is a growing total of uncounted billions in prospect for the purposes of organized public welfare. It is the consensus of opinion among students of our social order that unless this money is quickly used for contemporary philanthropic needs, it is almost certain to stagnate within a comparatively short period. I hold to this opinion.21
The most frequently mentioned positive reason offered by those who have decided to spend all their philanthropic dollars at the present time is the urgency of the many problems being faced by society today. Usually, those who give that explanation also couple it with a statement that tomorrow’s social problems should be tackled by the wealthy of the future rather than by those of today. Their tacit assumption is that at least the same level of wealth-creation that we are experiencing at present will continue through tomorrow, whenever that turns out to be. Moreover, almost every major field of philanthropic concern is likely to be in need of as much support as possible now.
Indeed, the present existence of an unlimited range of severe socioeconomic problems, countless environmental threats arising from global warming, and the many still uncured and often untreatable diseases, for example, make them real and palpable to us in a way that problems likely to exist some years from now can never be. Moreover, we know that almost all of those problems as well as many others, if left unattended, are bound to grow even worse by the time the future gets here, so that dealing with them now is of the essence if we are to have a chance to be successful in dealing with anything in the future. Unlike the problems we imagine society facing in the future, today’s can be grappled with now. So it is no surprise that such problems are gaining traction in the hearts of many people today, wealthy or not. As Chuck Feeney, founder of The Atlantic Philanthropies, has written, “I see little reason to delay giving when so much good can be achieved through supporting worthwhile causes today.”22
The major problems facing humankind today that are susceptible to being mitigated by voluntary philanthropy fall into three major baskets: the purely charitable; the complex problems for which solutions, long-run or short-run, are known or suspected; and the complex problems that first require a great deal of rigorous research in order to understand their causes and only then the possible ways of mitigating or solving them. The most immediately pressing need is the one that biblical and philosophical imperatives have historically enjoined human beings to tackle: charity, which is derived from the Latin caritas, meaning a godly love for fellow human beings who are suffering in one way or another. The longer-term, more intellectually challenging problems involve understanding and solving the underlying causes of that human suffering—the “root causes,” as Andrew Carnegie, John D. Rockefeller Sr., and other devotees of scientific, strategic philanthropy described them. These are the contents of the second and third baskets.
The purely charitable problems, those that serve an immediate summons on the conscience, are simultaneously the easiest to deal with, at least to some degree, but yet the most difficult to persuade large philanthropic donors to part with enough of their wealth to solve or to mitigate significantly. Foremost in this category are urgent life-or-death needs such as adequate food, preferably healthy and nutritious; safe and sanitary housing; and effective health care. As this is written in 2016, the massive flow of refugees from Syria comes to mind. Wealth given to help those refugees will save lives, but many donors appear to be reluctant to give enough of their philanthropic dollars for that purpose, partly because they instinctively prefer to pursue causes that are “higher and better”—meaning longer term, more complex, less tangible—than common charity. Many of us try to do both, which is certainly better than doing nothing, but, to put it plainly, we tend to aspire to get a bigger bang for our philanthropic bucks than to spend them to feed the hungry, house the homeless, heal the ailing, support the frail and elderly, and save the alien refugees. One must wonder, however, what could possibly achieve a bigger bang?
On the other hand, purely charitable needs can be met immediately, with nearly instant knowledge of the good each dollar has done. That is no doubt an important part of their appeal to some individual givers and to those who are not focused on making strategic or systemic changes with their contributions. However, most of us—and certainly most large donors and foundations—tend to disdain providing mere “Band-Aids” for basic needs, because we have been taught to put our philanthropic wealth into solutions at the root of problems and not to apply band-aids to them.
And that, too, is where the philosophical forbears of modern philanthropy point the thoughtful giver. Maimonides, the 12th-century physician and philosopher, urged others, “Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.”23 Carnegie captured this idea when he wrote, “Teach a man to be a good citizen and you have solved the problem of life.”24 That was the underlying reason that Carnegie built 2,509 libraries—to help indigent men and women learn how to read.
This quest for focusing philanthropy on avoiding band-aids in order to focus on root causes goes back to the founding of America’s first foundations. Kenneth Prewitt, Carnegie Professor of Public Affairs at Columbia University, referring to Carnegie and John D. Rockefeller Sr., puts it this way: “The gift that matters is not to the individual beggar but to the situation represented by the beggar. To attend to the situation rather than the symptom was an idea that permanently and fundamentally altered the relationship between private wealth and public purpose.”25
With rare exception, however, the search for root causes leads to the second and third baskets: the complex problems for which the solutions are either known or suspected, yet still elusive in practice, and those for which the solutions are yet to be discovered. The various diseases suffered by human beings are the most comprehensible examples of what are found in the second and third baskets. At present, diseases in the second basket—where the nature of the problem is understood—tend to attract more of the available public dollars than those in the third, where the nature of the problem is not understood. Think of the former as requiring applied biomedical research and a large number of clinical trials and the latter as calling for basic biomedical research. In fact, only rarely has government been willing to make significant public funds available for basic research.
While most of those who have decided to spend down their philanthropic dollars explain that they are doing so to engage in “urgent social problem-solving,” they are in fact rarely focused on the immediate demands of charity, for all the reasons just described, but on problems whose urgency derives at least partly from the elusiveness of their solutions—in other words, those in the second and third baskets. These have a tendency to stir the imagination and to inspire the kind of boldness and optimism that prompts the thought “With enough effort (or money or leadership or entrepreneurship), I can solve this one!” That is, one suspects, the kind of enthusiasm behind Mark Zuckerberg’s impulsive $100 million grant in 2010 for school reform in Newark, New Jersey. As often happens, the result of that exercise, while not quite as disastrous as some press accounts suggested, were chastening at best. The grant and the reforms it was meant to support ran into considerable opposition, proved tricky to implement, and ultimately led to the election of a mayor with decidedly different ideas about how to improve the schools. The lesson was that even the problems that appear to be in the second basket—those with seemingly clear solutions that need only a means of effective implementation—may actually be less clear and their solutions much harder to carry out than they seemed at first.
Sometimes, the bold venture pays off, and the fierce urgency of a need really is met by a fierce, urgent, and successful drive for a solution. That was the happy experience of the Aaron Diamond Foundation, a time-limited institution that concentrated on medical research, minority education, and culture. (A fuller description is available in Appendix A.) When the spread of AIDS threatened to overwhelm hospitals nationwide in the 1980s and early 1990s, the foundation injected enormous resources into AIDS research—a field that was then still struggling to organize and amass the necessary capacity to tackle a still-mysterious, universally deadly disease. It was, at that point, unquestionably a third-basket challenge and a long shot for a foundation that intended to wrap up its work within a decade. Undeterred, the foundation created the Aaron Diamond AIDS Research Center in 1989, which, a few years later, pioneered the combination of antiretroviral drugs (commonly referred to as the “AIDS cocktail”) that ended the death sentence for people infected with HIV. With that and other achievements to its enduring credit, the foundation put the last of its $200 million to use and closed its doors in 1996.26
And it must be noted that the challenge of developing a vaccine to prevent AIDS—a third-basket task—is still with us, even after many foundations and philanthropists, as well as governments, have poured cumulative billions of dollars into discovering one that is effective! One must thank God that the Aaron Diamond Foundation had the vision and the courage to deploy its wealth 30 years ago to develop an effective life-preserving treatment despite society’s inability to prevent AIDS in the first place. If there is a lesson from this example, it is that a small foundation, free to act on its own, may have sufficient wealth to take a big bite out of the consequences of a problem even if it has nowhere near the wealth to solve the problem at its root.
Still, such stories are as rare as they are thrilling. More often, when dealing with problems in baskets two and three, the fierce and urgent drive for a solution ends up becoming a long slog, marked by progress and discovery but also by setbacks, and perhaps eventually rewarded with at least some partial breakthroughs—but rarely distinguished by dramatic and punctual obedience to a preordained timetable. Donors and foundations for whom such a timetable is critical may therefore understandably choose to focus on the least mysterious contents of basket two, preferring the relative predictability of success over an objective judgment about which problems are the gravest or most critical.
Those who analyze philanthropy in the language of investment sometimes present an argument for time-limited giving that focuses not so much on the urgency of the need as on the magnitude of the benefit. A philanthropic accomplishment today, they argue, will produce ripples of social return that will compound at high rates over time, aggregating far more value than if smaller amounts were invested piecemeal year by year. Or, to quote Chuck Feeney again, “Intelligent philanthropic support and positive interventions can have greater value and impact today than if they are delayed.”27
This may be a reasonable belief, but it is not always easy to pin down why someone subscribes to it. In some cases, it may be just a sophisticated-sounding way of privileging the present over the future, just because the people who share the planet with us today seem more important to us than people not yet born. But that would be a poor reason to inflate the value of accomplishments today compared with those of tomorrow. As Stanford professor Michael Klausner wrote in an influential 2003 article about present and future philanthropy, “[A]s a matter of analysis, we need to recognize that current charity comes at the expense of future charity, and that the mere timing of a generation’s presence on this planet is not relevant to the social value of charity provided to that generation. Moreover, because charity deferred to the future earns a return in the foundation’s investment portfolio, a dollar withheld from the current generation can be expected to yield more dollars of charity for future generations.”28
Nor is it necessarily true that placing all one’s chips on a present-day effort—even one that would pay gigantic social dividends if successful—is necessarily the best way to maximize benefits for society. If, for example, all the experts on a rare disease are already at work seeking a cure, is it necessarily true that flooding their labs with more cash today will do more to produce a breakthrough than providing a steady stream of support, and gradually training new and larger generations of researchers, over a much longer time? Are there good reasons to believe that the music world will be much better off if a dozen more orchestras perform today than if new generations of musicians and audiences are nurtured and sustained over a longer period?
The concept of fast-compounding social return is beguiling—every donor and foundation executive wants to envision billows of expanding social benefit ballooning from their grants like cosmic expansion from the Big Bang. But to make this argument persuasive, one needs to have some idea of the kind and quantity of social return likely to be “earned” by one’s philanthropic investment and what would make that initial return compound in value later on. These calculations then need to be discounted for the risk of failure and for the likelihood that the effects of any success will probably diminish as time marches on (even the Big Bang cooled after a while). It is rare to hear these complexities spelled out, but there are surely circumstances in which it would make sense to do so.
For example, perhaps not enough experts are productively employed in fighting a fast-spreading disease, and their labs and equipment are inadequate, but with greater effort a breakthrough does seem tantalizingly plausible. Then, to be sure, it would be reasonable to believe (as the Aaron Diamond Foundation did with antiretroviral research) that a great, present-day commitment to an all-out effort will save many more lives than a slower, steadier approach. There, the human reward—plus the compounding economic value of saved, productive lives and the stanched flow of health care dollars no longer needed for treatment—adds up to a significant payoff that starts big and grows even bigger. True, the researchers might fail; the tantalizing breakthrough might prove chimerical. Not everything ends as happily as the Aaron Diamond program. But, if the risk of failure seems small enough, it is easy to imagine a smart investor—philanthropic or otherwise—who would consider this a solid bet.
Similarly, if one could provide enough schools, teachers, and textbooks to educate an entire generation of girls in a place where they now have little or no chance at education, think how quickly the benefits of their longer, happier, and more productive lives would compound—for them, for their communities, and for the world. Surely that opportunity would cry out for a no-holds-barred effort, right away, without hesitation. But one would need to be fairly certain that the schools would be built and maintained, the teachers well trained and dedicated, and the girls’ families and communities prepared to send them to the schools and to support their education. The money spent today will not be available later to see that all those critical factors persist. Without a proper discounting for present and future risk, the impressive image of compounding returns is misleading. Meanwhile, the all-out quest for an expensive Big Bang may leave nothing for later, when it comes time to deal with a long, slow disappointment.
The more closely one looks at this calculation, the clearer it becomes how many critical factors need to line up just right—high initial returns, high likely rates of compounding, low performance risk, low rates at which future value erodes—or else it is not so clear why “interventions can have greater value and impact today than if they are delayed.”29 Sometimes hesitation is the very thing that can reduce the risks and raise the return. Investors who leap into the markets dreaming only of profit and underestimating the risk of delay, surprise, or loss tend to part with their money in short order, sadder but wiser. The same may be true in the market for social improvement.
I think that giving away money is a pleasurable thing thing [shares David Rubenstein], and my observation is that so do most people who give away their wealth. Rarely do people say, “I hate myself. I gave away money and I don’t really feel good about it. I really wish I hadn’t helped those people.” People don’t say that. They say, “I feel better about myself.” So if you feel better about yourself for giving away the money, why not give away more of it while you’re alive, so you can feel better about yourself more than before?… And I would like to give it away because I want to see it while I’m alive, and I’m not as confident that in the afterlife, I will actually be able to see it.30
Of all the rationales for giving during one’s lifetime, surely the most incontrovertible is that doing so is deeply satisfying, in a way that providing for an unseen future simply cannot match. Donors who are motivated, partly or entirely, by the joy of seeing their wealth do good in the world have an understandable impulse to want to use everything they have now, while they are still present to witness the results. Of course, it is possible—and, on the logical left side of the brain, I would argue that it is reasonable—to want to do both: to devote some resources to the joyful present and some to a beckoning future (when new problems will vex unborn generations) and when entirely new kinds of solutions will cry out to be nurtured.
After all, the joy of present giving is not solely an emotional treat for the donor; it is a source of energy and inspiration that can enliven whole institutions. Living donors can, through their passion and talent for giving, make a distinctive contribution to the foundations they establish. Because of the moral authority that stems from their generosity, if they so will it, their fellow board members will almost invariably defer to their judgments about initiatives to undertake and will help them translate their ideas and inspirations into working programs that carry on after they are gone. For example, the major achievements of Carnegie and Rockefeller during their lifetimes—including Carnegie’s libraries and TIAA-CREF and John D. Rockefeller Sr.’s Rockefeller Institute of Medical Research (now Rockefeller University) and the University of Chicago, both of which he founded—were followed by equally pioneering initiatives undertaken by their foundations’ trustees after the founders were no longer alive. John D. Rockefeller Sr. died in 1937, yet The Rockefeller Foundation’s Norman Borlaug won a Nobel Prize in 1970 for developing new food grains that, according to demographers, saved 1.5 billion lives. Andrew Carnegie’s successor trustees were instrumental in the creation by Congress and President Lyndon Johnson of the Public Broadcasting System and National Public Radio in 1967 and the establishment by Congress and President Johnson in 1972 of the Pell Grants for higher education scholarships, which are now the primary source of scholarship support for students in need. The billions of lives saved by the post-Rockefeller Rockefeller Foundation, the uncounted millions of Americans who rely on NPR for their daily news, and the 30 million young people who are able to attend college because of Pell Grants are certainly equal in public benefits to the pioneering philanthropies of those two foundations’ founders.
Nonetheless, I acknowledge the difference between the “personal” philanthropy of hands-on living donors and the “institutional” philanthropy of foundations created by now-deceased founders. Of all those whom I interviewed for this book, perhaps the words of the hedge fund pioneer Michael Steinhardt, cofounder of Taglit Birthright Israel, which sponsors trips to Israel for Jewish young adults living in other countries, underscore this distinction most precisely: “I do think that I wouldn’t derive such pleasure, such joy, as one should from this activity, if I set up a foundation and knew that the board of trustees was going to revolve over a period of time and it would become more and more impersonal.”31
Steinhardt made it clear that he does not intend his comments to disparage the achievements of perpetual foundations but only that he is not willing to forego the satisfaction of doing his giving himself. Other than leaving significant inheritances to his children and grandchildren, he intends to make virtually all of his philanthropic giving during his lifetime.
I have great respect for the way Steinhardt sees philanthropy and wish that there were many more wealthy individuals who instinctively love the act of giving as he does. It must be said, however, that Steinhardt’s passion does not lead him to act indiscriminately. Just as powerful as that love of giving is his insistence on achieving the greatest possible impact with his dollars. The joy that he derives is based on having helped make something happen that, but for his efforts, would not have come to pass. Like so many other successful philanthropists, Steinhardt is an excellent finder of niches that can be filled by employing his wealth and that of others who are inspired by his example and who share his passions.
There is not the slightest doubt that donors who decide to “give while living” will be able to spend more money in the short run. That is the major positive purpose that animates such donors, and it is based on their assumption that greater impact can be achieved by spending ever larger amounts of money. But that assumption is untested as a general rule, and the accuracy of the assumption clearly depends on the problem that is being targeted. If it is a large, amorphous issue—such as decreasing inequality in America—most experts would agree that the problem itself is so big and so complex that it likely cannot be solved or even significantly mitigated by the limited resources any philanthropist can bring to the table and cannot likely be solved during anyone’s lifetime. Of course, philanthropically supported initiatives may be able to make a dent in it. One good example of such an initiative is the National Employment Law Project, mentioned in the section on foundation advocacy, which has been credited with bringing about the increase in the minimum wage in some cities and states to $15 an hour.32
Although this is a welcome step forward, on its own this will not “solve” the problem of inequality in America. In truth, it is just one small step toward rectifying only one of the many problems that together create inequality and that make it so difficult to solve. Obviously, philanthropic resources alone are substantially inadequate to address the issues. Inequality can be solved only by the disproportionately large resources available primarily to government itself. In the United States, the only successful course that will yield results is to advocate for changing public policy with regard to such issues as the minimum wage, the tax code (now written usually to favor the haves over the have-nots), and the reluctance of state legislatures and Congress to provide more substantial income, food, housing, educational, and health benefits to America’s poor and near-poor. In addition, achieving these goals requires changing the minds of many Americans so that they would be willing to elect public officials who are committed to supporting major—and costly—public policies that would in fact require tax increases to fund them. Changing minds (and behaviors) invariably requires a great deal of time—meaning decades, not years.
If the past behavior of “giving while living” philanthropic donors is any indication of their future willingness to put their “end-of-life” dollars into such advocacy efforts, I don’t have much hope that the many advocacy initiatives required to solve the inequality problem will come from them. They seem to prefer high-visibility “big bets” that will pay off in the short run rather than many years in the future. As pointed out earlier, virtually all of the support for the National Employment Law Project has come from perpetual foundations.
Global warming is a comparable if oft-cited example. It, too, is a large, amorphous problem that can be solved, if at all, only by changing the attitudes of citizens around the world. Therefore, it is not surprising that present global warming efforts bear another similarity to the existing efforts to address inequality in this country: virtually all of the substantial philanthropic support now being deployed to tackle this problem is provided by perpetual foundations. Here too the “spend-down” foundations and individual philanthropists are aiming for greater impact in the short run.
One of the major factors that deter “giving while living” philanthropists from deploying sizable amounts of money to remedy large, intractable problems is that the existing nonprofit organizations that might be considered as grantees, or any new organizations that the donors might establish to address those problems, simply cannot absorb and put to good use so many dollars over a short period of time. As my colleague Tony Proscio elaborates, “There may not be enough manpower in the field, the ideas for possible successful solutions often aren’t ripe enough, and the tractable targets of opportunity may simply be too few. As anyone who has worked in foundations for any length of time will realize, many cash-hungry nonprofits simply cannot absorb a great deal of cash to be spent over a short time span. Only so many experts capable of researching cures for a given disease are available. There are only so many advocacy organizations capable of rallying major climate-change forces. You simply cannot, in a brief period, multiply the kind of highly trained talent needed for advanced-level work by flooding the field with money.”33
As I stressed above, such problems cannot be solved with quick fixes. Deploying large amounts of money in the present, when the funds cannot possibly yield the desired results—regardless of how large the sum—virtually guarantees that such precious resources will be wasted. What is required are institutions with long enough lives to make the financial resources available when the acute, complex problems are ripe for solution and the resources can productively be put to use. That means perpetual foundations or perpetual universities or perpetual think tanks. Note the repetition of the word “perpetual.”
Increasing experience with strategies that stretch over decades has enabled foundations and researchers who work with foundations to understand how long it takes to implement and achieve success in bringing about changes to intractable social problems.34 Indeed, ask research scientists in pharmaceutical companies how many years—and how many billions—it takes to create and test a new drug and how often the pursuit after many years ends in a “dry hole” with the money already gone. Solving or even significantly mitigating difficult, complex problems requires collaboration among many stakeholders, and success often depends on retaining involvement and commitment over many years. Bridgespan consultants Willa Seldon and Meera Chary, writing in The Chronicle of Philanthropy, reported in 2015 that “On average, the collaborations we studied have been operating for a dozen years. We initially picked this group of programs because they had produced measurable improvements in communities, and most continue to get results.… Getting key players to the table and keeping them there”35 is among the great challenges. This research underscores why all the money in the world applied to such problems over the short run cannot hasten reaching the solutions.
If you care deeply about curing any one of the various kinds of cancer or other diseases, spending down your philanthropic resources over your lifetime is not likely to be an appropriate way to proceed. In general, it is usually difficult if not impossible to speed important breakthroughs in understanding, treating, or preventing disease by pouring massive amounts of money into research in the short run. What is required instead is maintaining a constant flow of smaller amounts of money targeting a problem over what can be a very long time. For example, the recent discovery by Drs. Henry Friedman and Matthias Gromeier and their Duke Medical Center associates of a new way to disarm a brain tumor’s shield against the body’s immune system’s activity, thereby permitting a patient’s immune system to destroy a glioblastoma tumor, occurred thanks to the steady, sustained flow of modest amounts of money over some 25 years.36
However, you can certainly spend significant amounts of money in the short run to provide funding for an endowment or for facilities and equipment or otherwise to support researchers and infrastructure at a research center full of first-rate biomedical scientists who will devote many years to attacking the disease that you care about—as long as you understand that the results you seek will likely occur well into the future. Depending on the difficulty of the problem, you may not see the results during your lifetime. To feel comfortable making such a large amount of money available with little likelihood of personally witnessing the results requires great patience and trust in the institution and its researchers whom you are supporting. Alas, that is the only sure way to cure, prevent, or improve the treatment of a disease. This is exactly the approach used by the tech billionaire Sean Parker in 2016 when his foundation donated $250 million to establish The Parker Institute for Cancer Immunotherapy, bringing together in one virtual network 300 scientists working in a dozen or so major medical research centers in 40 different laboratories with a goal of advancing the use of immunotherapy in treating cancer.37 The Atlantic Philanthropies, which is fast closing in on its sundown at the end of 2019, used that same strategy for a grant of $177 million to launch the Global Brain Health Institute, a partnership between the University of California at San Francisco Medical Center and Trinity College Dublin, to advance the prevention, diagnosis, and treatment of dementia.38 Many of the global health initiatives supported by the Bill and Melinda Gates Foundation (see the details in Appendix A) are premised on the same strategy of spending significant dollars in the present in order to cure specific diseases long into the future.
There is a big difference between giving away your wealth while living and achieving impact from your wealth while living. Achieving impact from one’s wealth is every bit as hard as giving away one’s wealth is easy. The former is filled with challenges at every step, as the path of philanthropy is lined with people and institutions eager to receive support.