I listened to a fascinating, highly recommended episode of the Vox podcast series “Future Perfect” this week that was embedded in an article called “Dead people leave billions in their wills. How long do we have to listen to them?”
The theme of the podcast – should foundations exist in perpetuity? – is a topic that has increasingly appeared in fundraising periodicals and in our HBG Book Club discussions of The Givers (David Callahan), Just Giving (Rob Reich) and Winners Take All (Anand Giridharadas). Each book has a slightly different angle on the topic, but generally the consensus is that endowed foundations and donor advised funds take money out of circulation that could be used to solve problems now.
And further, maybe it’s not just that problems could be solved now, maybe it’s a problem that, for some of them, the needs for which the endowments were established no longer exist. Or the original terms were just really repugnant to begin with.
The Vox podcast entertainingly shares two stories illustrating those case scenarios. One story describes a Georgia pleasure garden built for the perpetual, exclusive enjoyment of a city’s white citizens. What happens when, 50 years later, a foundation’s trustees or a municipality are charged with re-examining a donor’s intent? (In the garden’s particular case, the municipality shoots themselves in the foot. Listen to the podcast to learn more.)
If times change but the purposes for which a foundation is established can’t (or don’t, or won’t) change, does it even make sense for foundations to be allowed to exist in perpetuity in the first place? What happens if the disease for which a perpetual trust is established to remedy is eradicated? Sure, we can say that the trustees just have to go to court to get the money freed up for another purpose, but as the New York Times reported, sometimes the trustees don’t actually want that to happen.
And that’s where usufruct comes in. The podcast presenters, Byrd Pinkerton and Dylan Matthews, interviewed Boston College law school professor Ray Madoff (no relation to the con man), who describes what the general feeling was in the days before Rockefeller and Carnegie-style foundations came into being. Here’s an excerpt:
Matthews: So Byrd, you promised me an explanation for why we allowed people to have trusts that last forever.
Pinkerton: Yes. So the first thing I learned from Ray is that is hasn’t always been this way.
Madoff: Historically we did not allow people to create their own donor-intent-preserved-in-perpetuity, right? We explicitly did not allow that for the first century after the country was formed. It was seen as aristocratic, it was not the American Way.
Pinkerton: We had literally just fought an entire war to establish democracy.
Madoff: These zombie entities that could live forever were seen as very disconcerting and not necessarily appropriate for a country that was supposed to represent the wishes of the people and that’s why Thomas Jefferson famously said that the world is held in usufruct for the living. And usufruct is a funny word, but what it means is life estate, that the world is to be held for the living for the time of their lives, and after that it is to be freed up for the next generation to hold the world as they see fit. And that was a very strong value of Jefferson and of a lot of the founders. The people in their time controlling the resources of their time for their time.
More generally, the word usufruct means having temporary access to another person’s (or entity’s) stuff, whether it’s money, or a private park, or some other benefit that you don’t actually own but you get to use, like that piece of clothing you borrowed with permission from your roommate’s closet. You get the benefit of it for a time, not for ever.
Things changed in America when the steel and oil and railroad barons started amassing more money than they could possibly spend, and public infrastructure increasingly needed upgrading. There was societal need and a sudden rise of income inequality in this first Gilded Age, but no mechanism or infrastructure for organized or institutional philanthropy was in place.
In modern history, nothing like this had happened before – commoners rising to the economic level of kings – and as far as the 1% of that age knew, based on history they would likely always be princes and the poor would likely always be paupers. An environment started to emerge that was more friendly to (or at least tolerant of) establishing charitable foundations in perpetuity to help keep the fringes of society’s infrastructure shored up.
So the rich (in the form of John D. Rockefeller), wanting to do something positive with this mountain of money, pressured lawmakers for change and eventually got it. The first endowed charitable foundation, The Rockefeller Foundation, was given permission by the US Congress to be formed in May of 1913.
And now here we are, today, discussing changing the rules
Over the past century, the establishment of foundations has undoubtedly made our society better. But the eke-ing out of 5% of foundation assets hasn’t gone a long way to actually solving the issues that face us. It’s increased endowments and given the folks managing assets meant for the underserved a good living.
Much of the commentary we’re seeing in op-eds, articles and books by philanthropy historians and thought-leaders during this second gilded age call into question this trickle of band-aid funding when bolder collaborations could take place. Some call for measured thinking while others are more strident, but the voices advocating for change are getting louder.
Some want endowed foundations to be a thing of the past entirely. Others call for a 100-year existence with mandatory sunsetting. And many (including myself) want greater transparency, protection for donors against misrepresentation and usury, and and at least a minimum donation requirement (or better – a maximum life span) for foundations and donor advised funds.
Now that we’ve had a hundred or so years of seeing the best and worst of the philanthropic foundation and the donor-endowed funds’ legacy, where will pressure for change come from?
Do we even want change? Are we used to perpetual, yet rationed, usufruct?
When change comes, I can’t imagine that it would originate with a state or federal government, and it probably won’t come from within the foundation world itself. Change would be unlikely to be broached by nonprofits who hold an uneasy power position as foundation-fund applicants.
But we’ve seen a movement start already with the creation of The Giving Pledge – donors committing to give away at least half of their net worth during their lifetimes. Maybe change could come from the donors themselves.
Or maybe it’s the press that will push our sector to shift our perspective? Anand Giridharadas, David Callahan and other journalists are gad-flying adjacent to the wealthy 1% and the third sector. Maybe change will come from the buzz they’re creating.
Or it could be a collaborative mixture of voices from inside and out of the nonprofit sector. Just Giving author Rob Reich is an academic at Stanford who most certainly relies on philanthropic support to fund his research.
And these were some of the last words I heard on the Vox podcast: “Future Perfect is made possible by a grant from the Rockefeller Foundation.”