The Donor Has the Final SayMartin Morse Wooster on Donors, Foundations and Philanthropy

Summary: Friends and supporters of theCapital Research Center turned out to honorCRC senior fellow Martin Morse Woosterupon the publication of a new edition of hisexemplary book, The Great Philanthropistsand the Problem of ‘Donor Intent.’ CRCpresident Terry Scanlon hosted a cocktailreception and book-signing for Wooster onJune 20 at the Center’s headquarters build-ing in Washington, D.C.

October 2007

The Donor Has The Final SayPage 1

CONTENTS

Capital Research Center held a summertime reception to launch the latest edition ofMartin Morse Wooster’s The Great Philanthropists. From left to right: William Schambra,director of the Hudson Institute’s Bradley Center for Philanthropy and Civic Renewal;Wooster; Whitney Ball, executive director of DonorsTrust; CRC President TerrenceScanlon; Adam Meyerson, president of Philanthropy Roundtable. (Photo by Doug DeMark)

Martin Wooster has been writingabout donors, foundations, andphilanthropy for more than a de-cade. The first edition of Wooster’s book TheGreat Philanthropists and the Problem of‘Donor Intent,’ published by Capital Re-search Center, appeared in 1994. In the yearssince, Wooster has revised and extendedthis cautionary study of how some ofAmerica’s largest foundations have ignoredor repudiated the ideals of their founders andwhat donors can do to ensure that the foun-dations they endowed carry out their inten-tions. The current third edition contains awealth of new material and was made pos-sible through the generosity of Mr. Christo-pher Haig of Honolulu, Hawaii, a benefactorwho cares deeply about the responsibilitiesof donors and the philanthropic institutionsthey create.

Readers familiar with Martin Wooster’swork know that it is grounded in history butleavened by his sharp eye for the entertain-ing and the absurd. And the man is prolific.In addition to The Great Philanthropists,Wooster has written at least 30 newsletterarticles and reviews for Capital ResearchCenter as well as two monographs: Return to

Charity: Philanthropy and the Welfare State(2000) and Should Foundations Live For-ever? The Question of Perpetuity (1998). Heis the author of at least 50 articles and reviewsappearing in Philanthropy magazine, a publi-cation of our friends at the PhilanthropyRoundtable. And he is the author of fourother books published by conservative thinktanks: Great Philanthropic Mistakes, pub-lished in 2006 by the Bradley Center for Phi-lanthropy and Civic Renewal at the HudsonInstitute; By Their Bootstraps: The Lives ofTwelve Gilded Age Social Entrepreneurs,published in 2002 by the Manhattan Insti-tute; The Foundation Builders published in

2000 by the Philanthropy Roundtable andAngry Classrooms, Vacant Minds: What’sHappened to Our High Schools? , publishedin 1994 by the Pacific Research Institute.

Philanthropy NotesPage 8

Reception PhotosPage 5

FoundationWatch

2 October 2007

Editor: Matthew Vadum

Publisher: Terrence Scanlon

Foundation Watchis published by Capital ResearchCenter, a non-partisan education andresearch organization, classified bythe IRS as a 501(c)(3) public charity.

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Reprints are available for $2.50 prepaidto Capital Research Center.

The following selections illustrate Martin Wooster’s keen interest in the lives of donorsand his concern that the philanthropies they support remain faithful to their intentions. Thefirst is Wooster’s summary overview of The Great Philanthropists. It was prepared at therequest of Christopher Haig as a guide to the book’s content.

The second selection, “Giving to College Endowments,” taken from the November 2002issue of Foundation Watch, describes some of the promises, made and broken, that collegeshave made in their pursuit of donors.

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The Great Philanthropists and theProblem of ‘Donor Intent’

A Summary Overview

By Martin Morse Wooster

Study the lives of great philanthropists andyou’ll find a curious paradox. Most of theimportant philanthropists—Henry Ford,Andrew Carnegie, John D. MacArthur—wereheroic entrepreneurs who strongly believedin free enterprise and traditional virtues. Butliberals or leftists control the foundationsthat serve to perpetuate their names—theFord Foundation, the Carnegie Corporationof New York, the MacArthur Foundation.

It’s usually the case that the longer a foun-dation lasts, the longer it drifts away from theideals of the donor. This drift—technicallyknown as “the problem of donor intent”—isa problem every donor must face. But it’s aparticularly acute problem for conservativeand libertarian donors, given that the sorts ofpeople who want to be program officers orpresidents of foundations are usually liber-als or leftists.

This book includes seven case studieswhere donors created foundations thatstrayed from their principles. It then includesfour case studies of foundations that havestayed relatively true to their donors’ inten-tions.

The seven case studies showing bad ex-amples of donor intent:

· Henry Ford and Edsel Ford created theFord Foundation largely to avoid punitiveestate taxes on the wealth they created.They left no instructions as to how the FordFoundation should be run or what it shoulddo. In addition, Henry Ford’s grandsonand heir, Henry Ford II, signed a documentin 1948 that largely renounced family con-trol over the Ford Foundation. The resultwas that liberals quickly seized control of

the foundation, and Henry Ford II resignedas a trustee of the Ford Foundation in aprotest over the foundation’s leftward drift.

· Andrew Carnegie spent most of his lifecreating nonprofits with specific, limitedgoals. These nonprofits, such as theCarnegie Institution of Washington, theCarnegie Hero Fund, and the Carnegie En-dowment for International Peace, still largelyreflect Carnegie’s wishes. Carnegie, how-ever, ran out of ideas while he still had halfhis fortune to spend. He therefore createdthe Carnegie Corporation with no instruc-tions or restrictions on what the organiza-tion was to do. Freed from any restrictions,the Carnegie Corporation became a pillar ofliberalism.

· John D. MacArthur did not want would-be grantees haranguing him for money. Hetherefore vowed to use his wealth to createa large foundation that would not come intoexistence until after his death. He trustedhis lawyer to carry out his wishes. Whilethe MacArthur Foundation board was origi-nally made up of conservatives, a powerstruggle led by MacArthur’s son, J.Roderick MacArthur, forced nearly all theconservatives out of the MacArthur Foun-dation within three years after the donor’sdeath. As a result, the MacArthur Founda-tion is today one of the most left-wingfoundations in America.

· The members of the Pew family werestalwart conservatives. J. Howard Pew, anarticulate and forceful defender of freedom,created the J. Howard Pew Freedom Trustto fight “Socialism, Welfare stateism [and]Fascism.” But after the Pews died, the foun-dations they created were taken over bypeople who did not share their values andbeliefs and had no ties to them. The PewCharitable Trusts have drifted far to the left.

· Albert C. Barnes was an art collector whocreated a gallery, the Barnes Foundation,

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FoundationWatch

to house his collection. He could not fore-see who would run the gallery after hisfriends and associates on the board passedaway. He made the mistake of authorizingLincoln University, a historically blackcollege, to pick the foundation’s trusteesafter his friends and associates died. TheseLincoln University-appointed trusteesspent years trying to break Barnes’s will,which had extremely explicit instructionson what the Barnes Foundation was sup-posed to do. After a series of court battlesthat lasted fifteen years, the Barnes Foun-dation was taken over by the art establish-ment that Barnes despised.

· Beryl Buck wanted to leave her wealth tohelp the people of Marin County, Califor-nia. Her mistake was in allowing the SanFrancisco Foundation to administer theBuck Trust. The San Francisco Foundationwanted to use the Buck wealth to aid peoplein the San Francisco Bay area. After aprotracted legal battle known as “the SuperBowl of Probate,” the Buck Trust was sev-ered from the San Francisco Foundation. Anew community foundation, the MarinCommunity Foundation, was created withBuck Trust money. However, as part of thesettlement, the court ordered the creationof three new national nonprofits devotedto gerontology, combating drug abuse,and education—even though there is noevidence that Beryl Buck had any interestin these issues.

· Charles and Marie Robertson wanted tohelp Princeton University, CharlesRobertson’s alma mater, train students forcareers in government work in internationalaffairs. They trusted Princeton so muchthat they created the Robertson Founda-tion, and allowed Princeton to fill four of theseven seats on the foundation’s board.Afterwards, the Robertson family foundthat Princeton was using the RobertsonFoundation’s wealth (which amounts to sixpercent of the entire Princeton endowment)for purposes other than that which thedonor intended. The Robertson family isnow suing Princeton to sever the relation-ship between the foundation and the uni-versity so that the foundation can remaintrue to the donor’s intentions.

By contrast, there are four positive casestudies in The Great Philanthropists and the

Problem of ‘Donor Intent.’ They show howdonor intent can be preserved.

· The JM Foundation is a small familyfoundation controlled by the grandchil-dren of its founder, Jeremiah Milbank. Itstill focuses largely on what its founderwanted the foundation to do—aid the dis-abled and support free-market nonprofits.

· The Lynde and Harry Bradley Foundationcommissioned a biography of its foundersto understand their intentions. It tries toremain true to what the founders wantedthe foundation to do—help civic and edu-cation groups in Milwaukee, Wisconsin,and provide support for organizations thatare devoted to limited government and freeenterprise.

· The Duke Endowment is the best exampleof how to preserve donor intent. James B.Duke made his instructions extremely ex-plicit. He identified the causes to which theendowment should make grants. He evenspecified the exact percentage of grantsthat would go to particular organizations—32 percent to Duke University, 32 percentfor nonprofit hospitals in North and SouthCarolina, 10 percent for orphanages, andthe rest to other strictly defined causes. Tomake sure the trustees understood his in-structions, Duke required that the inden-ture be read aloud at the first trustees’meeting of any given year. As a result, theDuke Endowment still remains relativelyfaithful to its founder’s intentions—81years after James B. Duke’s death.

· The Conrad N. Hilton Foundation alsoreceived explicit instructions on what itwas supposed to do: it was meant to helpCatholic Sisters and organizations thatimprove the lives of children. The founda-tion remains in the control of the Hiltonfamily, whose members are the majority ofits trustees.

What can donors do to enforce their inten-tions? Unfortunately, there is no “magicbullet.” All the evidence suggests that within30 years after a donor’s death—that is, afterpeople who knew the donor personally havepassed away—a foundation will drift awayfrom the donor’s intentions.

Therefore, I recommend that all donors

voluntarily place a time limit on the founda-tions they create so that these organizationsspend themselves out of existence within 30years of their founders’ deaths. In addition,donors should make their intentions knownin documents and they should be as explicitas possible. The more detailed the descrip-tion of what a donor wants to do, the morelikely it is that a foundation will honor thedonor’s wishes. But donors should act onthe premise that their wills will be challenged,either by heirs who want the foundation’smoney or by foundation professionals whowant to use a donor’s wealth for their own petcauses.

Finally, donors should be very skeptical ofprofessional advisors who assume that adonor’s wishes are unimportant. People whomake money are smart enough to know howthey want their wealth to be used.

Still, the best way to preserve donor intentis for the donor to spend his fortune while heis alive and can see his wealth put to gooduse. Living donors are better able than deadones to ensure that their fortunes are appro-priately spent.

Giving to College Endowments

It happens every spring. If you’re pros-perous or well-known, chances are thatyou’ll get a call from your college’s fundraising office, asking why you haven’tcontributed to your alma mater—or if youhave contributed, why your contributionisn’t larger. Donating to education is, ofcourse, a worthy endeavor. But there’s agreat deal of evidence that shows the mostinefficient way to contribute to scholar-ships is to give unrestricted gifts to auniversity. Even restricted gifts frequentlyare misused when universities choose toviolate the donor’s intent.

Despite some setbacks in recent years,university fund raising offices remain large,sophisticated enterprises. This June, theColumbus Dispatch profiled the Ohio StateUniversity development office. Ohio Statedidn’t even begin major fund raising drivesuntil 1985; today, the school has a $1.1billion endowment, and it collected $210million from alumni in 2001. The Ohio Statedevelopment office has a $14.5 millionbudget and a staff of 158, including four

FoundationWatch

4 October 2007

branch offices in the U.S. and a fifth to beset up in Asia.

Ohio State’s most lavish fund raisingevent is its annual Winter College, held fortwo days in Naples, Florida. Alumni, mostof them retirees, pay $175 to hear lecturesfrom faculty, mostly on topics of interestto seniors, such as health issues and es-tate planning. The alumni then respondgenerously: Ohio State president WilliamKirwan returned from the 2002 WinterCollege with four $100,000 checks and onefor $250,000.

As fund raising enterprises go, OhioState is a medium-sized endeavor. Largeprivate schools raised more cash, particu-larly during the boom years of the 1990s.Between 1994-2001, 11 schools (includingOhio State) successfully completed bil-lion-dollar capital campaigns. The Univer-sity of Virginia, for example, finished itsbillion-dollar drive in February 2000, andthen announced that the drive would becalled “Beyond a Billion,” with premiumseats to football games reserved for bigdonors.

Harvard ended a five-year drive in 2000with $2.6 billion, raising its endowment toan all-time high of $19.6 billion—a sum solarge that a Harvard Crimson writerboasted that his school was “one of therichest non-profit institutions on theplanet” with an endowment “second onlyto the Vatican.”

In an October 2000 interview, Harvarddevelopment officer Andrew K. Tiedemanntold the Harvard Crimson that universitydevelopment officers were dissatisfiedwith the 34 percent rise in alumni dona-tions between 1999 and 2000. Harvard hadto be the number one university in America,and thus had to have more money thananyone else.

“We don’t persuade alumni and friendsthat we need money,” Tiedemann said. “Ifwe stood still we could get along, which isnot true of many other institutions, but theopportunity costs for Harvard and societywould be great and we would quickly notremain on the forefront. Harvard would notbe Harvard in a very short period of time.”

Harvard wasn’t even the most success-ful fundraiser in the Ivy League. Columbia

raised $2.74 billion between 1990-2000,thanks to 300,000 donors, including 29gifts of between $10-25 million, six gifts ofbetween $25-49 million, $50 million fromthe Bill and Melinda Gates Foundation,and $85 million from telecommunicationsmagnate John R. Kluge.

It should be noted that among the moregenerous donors to colleges and universi-ties in the 1990s were CEOs of now-dis-graced corporations. Among them:

· Tyco International CEO L. DennisKozlowski, who contributed so much toSeton Hall University that theinstitution’s business school is housedin Kozlowski Hall.

· Global Crossing CEO Gary Winnick do-nated $11 million to C.W. Post Univer-sity, which named its administrationbuilding Winnick House.

· There are at least 40 Arthur Andersenprofessors of accounting at various col-leges.

· Enron cancelled plans to endow twochairs at the Rice University manage-ment school. But there’s still an EnronProfessor of Economics at the Univer-sity of Nebraska (Omaha). And formerEnron CEO Kenneth Lay, through hisLay Family Foundation, has endowedchairs at the University of Houston(where Lay obtained his doctorate ineconomics), Rice University, and theUniversity of Missouri (Columbia). TheLos Angeles Times reported in Februarythat the University of Houston is stillcounting on the Lay Foundation to en-dow a second professorship at thatschool, along with a proposed Ken LayCenter for the Study of Markets in Tran-sition…

Asking for Money Why do donors contribute to colleges?If fundraisers were certain they knew theanswer to this question, their jobs no doubtwould be much easier. But whatever thedonors’ motives for giving, universitiesare not shy about asking them for money.Sometimes college presidents offer pecu-liar enticements.

Several schools have entered the burialbusiness. Mount St. Mary’s College in

Emmitsburg, Maryland expanded its cem-etery in the early 1990s; alumni have bought325 of the 450 new plots available, at feesranging from $500 on up. The University ofVirginia has sold 130 of the 180 slots avail-able in its new burial ground, at a cost todonors of $3,000 per plot. The Universityof Richmond has gone farthest. It spent $1million to build a columbarium designed tohold ashes from cremations. The schooloffers 2,970 niches to hold burial urns, ata cost to donors of $3,000 each.

Other schools offer donors the pleasureof personal attention. The Harvard Crim-son in 1999 observed that wealthy poten-tial donors would receive an invitation tohave lunch with capital campaign co-chairRobert Stone at the New York Yacht Club.“Bob takes you to lunch at the Yacht Cluband orders a plate of oysters,” said capitalcampaign co-chair Rita Hauser. The wait-ers “all call him ‘commodore’ and at theend of the lunch he says, ‘Wouldn’t it benice if you gave a few million?”

If lunch with Stone didn’t work, theHarvard prospect received two follow-upvisits—one from then-president NeilRudenstine and a second from provostHarvey V. Fineberg. “You get a call fromNeil and you chit-chat about the world andabout the weather and then he says, ‘Thisschool needs money,’” Hauser said. “Andif that doesn’t work, you get a visit fromHarvey. He doesn’t waste any time andasks you immediately. I have never knownthis trio to fail.”

But some university presidents get di-rectly to the point. University of SouthernCalifornia president Steven Sample toldthe Los Angeles Times how he attracted anine-figure gift from biomedical entrepre-neur Alfred E. Mann. Mann graduatedfrom the University of California (LosAngeles), but negotiations between Mannand UCLA had broken down. In May 1997,Sample heard about this and cold-calledMann. “Mr. Mann, you don’t know mefrom Adam,” Sample said. He then tookMann to lunch at the Pasadena Ritz-Carltonand explained that, as a private school,USC was better able to respect Mann’swishes than the state-run UCLA. Eightmonths later, Mann donated $112.5 millionto USC to establish the Mann Institute forBiomedical Research…

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The Great Philanthropists Book Launch at Capital Research Center,June 20, 2007 (photography by Doug DeMark)

Krista Shaffer of the Hudson Institute’s Bradley Center forPhilanthropy and Civic Renewal (left), with Phil Brand, CRCEducationWatch director

left to right: Terrence Scanlon, Dawne Winter, Abby Winter,and Tom Winter, Editor-In-Chief of Human Events

Terrence Scanlon (left) and CRC supporterWilliam Lauttamus (right)

Competitive Enterprise Institute’s IvanOsorio, a former Labor Watch editor (left)with CRC fellow Bonner Cohen (right)

Martin Morse Wooster autographshis new book

left to right: Whitney Ball of DonorsTrust, SaraSalupo, director of development for the Na-tional Taxpayers Union, NTU President JohnBerthoud

CRC Executive Vice President RobertHuberty (left) with Jill Lacey, editor ofCompassion and Culture (right)

CRC intern Stephen Albert (left) meetsWilliam Schambra (right)

Delores Parker (left), Jay Parker, presidentof the Lincoln Institute (center), with LukeLee, CRC’s office manager (right)

FoundationWatch

6 October 2007

What’s In It for the Donor? After the deal is struck, what do donorsget in return? Often the deal schools offerdonors is this: Give us enough money foran endowed chair, a scholarship, or a build-ing, and we’ll name something after youthat will ensure that you will be remem-bered forever.

Colleges offer an amazingly diverse port-folio of “naming opportunities.” Visit theUniversity of Arizona alumni associationbuilding, and you’ll f ind the DickMcDonald restrooms, named becauseMcDonald, a plumber, donated $30,000.“It was serious from the donor’s point ofview,” alumni association president KentD. Rollins told the Chronicle of HigherEducation. “It has certainly alerted us asto what donors might be interested in.”

The Minneapolis Star-Tribune reportsthat college athletic departments are in-creasingly entrepreneurial in offering nam-ing opportunities. At the University ofIowa, 35 of the 50 students on the footballteam hold endowed positions. ($250,000creates an endowed chair for the quarter-back). Penn State offers alumni who playedfootball the chance to put their names ona locker for $25,000. Clemson, for a $75,000donation, offers football season-ticketholders the opportunity to will their 50-yard-line seats—and a good parkingspace—to their heirs.

However, a donor can’t always assumethat a school will fulfill its agreement. A“head of advancement for an establishedcollege on the East Coast who prefers toremain anonymous” wrote an article forPhilanthropy exposing the tricks of thetrade. Some schools sell the naming rightsto a building to several donors, placingone donor’s name on one door and an-other donor’s name on another. Otherschools hyphenate names, changing the“Jones Building” to the “Jones-SmithBuilding” or placing the “Smith Center”inside the “Jones Building.”

Take the case of California State Univer-sity (San Marcos). In 1995, entrepreneurDonald Owen Van Ness donated $1 millionto the school with the understanding thatits business school would be named afterhim. But in 1998, shortly before Van Ness’sdeath, he agreed to a codicil to his willstating that, instead of the entire school,

Van Ness’s name would only be posted onone room of the business school’s library.

Van Ness’s friends sued, saying the do-nor was coerced, and citing as evidence anemail where Van Ness asked for his moneyback. But in September 2001, a mediatorruled in favor of the university, statingthat the school did nothing illegal in reduc-ing the reward for Van Ness’s donation.

The Endowed Chair There are particular perils in giving to the“endowed chair.” In Britain, the MargaretThatcher Foundation raised two millionpounds to endow a Margaret Thatcherchair of enterprise studies at Cambridge.But according to Spectator writer JustinMarozzi, the first holder of the chair, AlanHughes, was a Labour Party supporterwho contributed a paper to RebuildingSocialist Economies: A New Strategy forBritain. In an interview, Hughes refusedto say whether he was a free-market econo-mist , supported the ideals of LadyThatcher, or if he believed in capitalism.

Institute of Economic Affairs presidentJohn Blundell observes that securing theagreement of Lady Thatcher to raise moneyto endow the Thatcher chair was a “verybad, deeply flawed strategy from the start.”He notes that the donor “might secure thefirst appointment, but in time they loseinterest or die, and the chair becomes cap-tured by the academic establishment.”

But it’s not only conservatives who havereason to be suspicious of fundraisingcampaigns to endow chairs. There havebeen instances where liberals faced oppo-sition in trying to endow controversialchairs. Supporters of Anita Hill, for in-stance, raised $250,000 to endow a chair inher name at the University of Oklahomalaw school. In 1995, the Oklahoma statelegislature matched the grant, despitegrumblings by some legislators.

From the beginning, the Anita Hill Chairwas fraught with controversy. The Uni-versity of Oklahoma accepted donationsfor the chair, but refused to do any fundraising for it. Newhouse News Service re-porter Elizabeth Bryant observed in 1998that “Hill and some of her supporters be-lieve the foot-dragging [by the university]is calculated and reflects an atmosphere inwhich conservatism is entrenched and

controversial viewpoints—like Hill’s onsexual harassment—are shunned.”

“The fear of just the research (on sexualharassment,) and my name being attachedto it,” Hill told Bryant, was one reason whythe University of Oklahoma was not in ahurry to fill the chair.

In 1998, Hill left the University of Okla-homa for Brandeis University. And in May1999, the university dissolved the endow-ment for the Anita Hill Chair, claiming that$500,000 was not enough to hire a nation-ally-known sexual harassment scholar. Theschool said that it would work with Hill toeither return the money to donors withinterest, set up another endowment at theschool, or give the funds to a foundation.

Is Fool-Proof Giving Possible? How should donors give to colleges?My best and only advice is: Be careful.Perhaps the worst way to contribute is togive unrestricted funds to an endowment.If you do this, you sign away all controlover how your money is spent. It’s likelythat your gift will help your alma mater insome way, but it’s not inconceivable thatthe school will use the funds for a purposethat has nothing to do with education. In2000, Eckerd College president PeterArmacost and vice-president for finance J.Webster Hull were forced to resign whenit was found that $19 million—three-fifthsof the school’s endowment—was spentwithout the knowledge of the school’sboard of trustees. Most of the money wentto support a home for the elderly and ahousing complex, both of which went bank-rupt.

Donors with definite political or philo-sophical commitments should avoid giv-ing money for endowed chairs. Remember:Believers in the principles of free enter-prise and limited government can’t as-sume that endowing a chair of free enter-prise or entrepreneurship will add a pro-freedom scholar to a school’s roster. Uni-versities can legitimately argue that it is aviolation of academic freedom for a donorto have veto power over appointments.And even if the chair goes to someone whoshares your beliefs, don’t forget that moneydonated to colleges is fungible — themoney a school saves by not having topay the salary for an endowed chair ismoney that can be spent on causes a donor

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FW

An Important Reminder for CRC Supporters 70½ Years of Age or Older

The Pension Protection Act of 2006 permits taxpayers to directly contribute funds from their Individual RetirementAccounts (IRA) to a 501(c)(3) nonprofit organization. Specifically, this law lets you transfer funds from your IRAto a qualified charity without paying tax. Under the previous law you had to report as taxable income any amounttaken from your IRA. Any tax deduction you took for charitable contributions was limited to 50% of your adjustedgross income. By contrast, the law now allows IRA gifts without these tax complications. You may take advantageof this law if:

*You have attained the age of 70½ on the date of transfer.*You own a traditional IRA or Roth IRA.*You transfer no more than $100,000.*Your transfer is an outright gift.*Your transfer is made directly from the plan administrator to the charity.

The law does not apply to gifts from 401(k), 403(b), defined benefit, profit-sharing, Keogh, and employer-sponsoredSEP accounts.

This option is only available for gifts made on or before December 31, 2007. Capital Research Center does notoffer legal or tax-planning advice. Contact your investment professional for additional information.

GOOD DEEDS,SQUANDERED

LEGACIES

A cautionary tale first published in1994, this third edition by MartinMorse Wooster testifies to the con-tinuing importance of the issue ofdonor intent. It contains new mate-rial focused on the ongoingRobertson Foundation v. PrincetonUniversity case and an update on thetragic battle over the Barnes Foun-dation. An Executive Summary is alsoincluded.

Wooster, senior fellow at CapitalResearch Center, tells a cautionarytale of what has gone wrong withmany of this country’s preeminentfoundations. But he also showsthat other foundations, such asthose established by Lynde andHarry Bradley, James Duke, andConrad Hilton, safeguard theirfounders’ values and honor theirintentions.

$14.95 (plus shipping) To order, call 202-483-6900

or visithttp://www.myezshop.com/capital_research/

or mail your check and book order to:Capital Research Center1513 16th Street, NW Washington, DC 20036

may oppose.

To make sure that their intentions areobserved, donors to colleges and univer-sities can take several actions.

1.They should state their wishes as explic-itly as possible.The case of Lee Bass is well known. Heoffered $20 million to Yale to create a Pro-gram on Western Civilization only to seethe proposal collapse when Yale wanted touse the money to pay for professors whowere hostile to the principles of WesternCivilization. Donors to colleges shouldassume that, unless proven otherwise, thecollege executives they deal with are liber-als hostile to conservative principles.Donors should have escape clauses intheir donations to colleges that terminatethe grant if a school violates donor intent.In addition, donors should also insert “add-on” clauses to their gifts stating that theirmoney adds to, but does not replace, thecollege’s budget. This ensures thatschools use your gift to pay for causesyou espouse.

2.They should make their gifts term-lim-ited.Donor intent for gifts made in perpetuity isusually ignored within one generation af-ter a donor’s death. At Princeton, forexample, the heirs of donor WilliamRobertson are suing the school becausethey charge that the school is takingRobertson’s gift, designed to aid theWoodrow Wilson School of Public andInternational Affairs, and spending it onsomething else. Had Robertson, who diedin 1981, placed a time limit on his gift, hisheirs would not have to deal withPrinceton’s violation of Robertson’swishes.

3.They should consult with trusted thirdparties, such as the American Council ofTrustees and Alumni (ATLA) and DonorsTrust—and Capital Research Center.These groups have experience in dealingwith colleges, and they can identify whichschools are most trustworthy in keepingfaith with the intention of donors.

4. Above all, donors considering settingup a grantmaking foundation to supporthigher education ought to ask themselvesthis question: Which is better:

a) to make gifts while you are alive tospecific programs so that you can see howyour money is spent? Or

b) to establish a perpetual endowment andhope that students in future generationsremember that you gave the money?

The great donor Julius Rosenwald pro-vided the wisest answer to this perennialquestion in philanthropy. In his important1929 essay “Principles of Public Giving,”Rosenwald concluded that donors couldnot assume that a perpetual gift wouldensure that they would be remembered in

the future.

“If some men are remembered years andcenturies after the death of the last of theircontemporaries,” Rosenwald wrote, “it isnot because of endowments they created.The names of Harvard, Yale, Bodley, andSmithson, to be sure, are still on men’s lips,but the names are not those of men butthose of institutions. If any of these menstrove for lasting remembrance, they mustfeel kinship with Nesselrode, who lived adiplomat, but is immortal as a pudding.”

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8 October 2007

PhilanthropyNotesThe Philanthropy Roundtable has awarded this year’s William E. Simon Prize for Philanthropic Leadership to Frank J.Hanna III for his national leadership in K-12 education reform. Hanna helped found three Catholic high schools in the Atlantaarea and is a trustee of the Papal Foundation. He is also vice chairman of the Acton Institute for the Study of Religionand Liberty.

Wal-Mart Stores Inc. announced that Margaret A. McKenna , former president of Lesley University, will be the newpresident of the Wal-Mart Foundation, which gave $264 million in cash to charity last year, making it the largest cashcontributor in the U.S. McKenna was also previously White House deputy counsel under President Jimmy Carter.

Celebrity philanthropy is often highly overrated, reports the New York Times. “I think there needs to be greater skepticismabout celebrity involvement than I see in the media right now,” says Stacy Palmer, editor of the Chronicle of Philanthropy.Palmer said she was surprised that among the constellation of wealthy celebrities promoting charity, just one prominententertainment industry figure — Oprah Winfrey — donated enough to get on the Chronicle’s list of “America’s Most Gener-ous Donors” last year. Winfrey ranked 36th for pledging and paying out $58.3 million last year, well below 1st-rankedWarren E. Buffett, the investor who pledged $43.5 billion.

Experts warn that continued volatility or a sharp downturn in the stock market could hurt nonprofit groups, the Chronicle ofPhilanthropy reports. “There could be trouble ahead for charities even without a sharp dip in stock values. The real challengeis intense market volatility, which creates a lot of uncertainty. Uncertainty makes many people hesitate to make a commit-ment,” said Melissa A. Berman, president of Rockefeller Philanthropy Advisers.

Some U.S. charities are taking advantage of the weak American dollar by soliciting donations in Europe, the NonProfit Timesreports. Christian Relief Services of Alexandria, Virginia, seeks donations in the United Kingdom and France, whosecurrencies, the pound and the euro, are worth about US$2.00 and US$1.36 respectively. Prospect mailing in Europe ischeaper and response rates are higher, said Paul Krizek, vice president and general counsel of CRS, which plans to moveinto Germany this year.

Nonprofit tax experts told the House Ways and Means Committee September 6 that many universities and large foundationsare investing billions of dollars in “offshore blockers” –overseas companies— in order to avoid large tax liabilities from hedgefund income, the Chronicle of Philanthropy reports. Current law provides an incentive for foundations that invest in hedgefunds to place those investments in offshore tax havens such as the Cayman Islands, Janne G. Gallagher, vice presidentand general counsel of the Council on Foundations said. The Council urged lawmakers to rewrite a longstanding rule thattaxes income generated through debt-financed investments. A Chronicle survey of 268 nonprofits with endowments above $1billion found that hedge funds accounted for 18% of those groups’ portfolios.

President George W. Bush is expected to sign a bill approved by Congress that would forgive student loan debt for somecharity workers, the Chronicle of Philanthropy reports. The measure would allow borrowers to erase their loan balances after10 years of payments if they have worked during that time in a “public service” job. “Public service” includes employees ofnonprofit legal-advocacy groups and tax-exempt charities, government employees, public school teachers, law enforcementofficials, and public health workers.

Former Senate Majority Leader Bill Frist is working with Save the Children and the One Campaign to highlight pediatrichealth issues, the New York Times reports. A physician by training, the Tennessee Republican plans to lead a drive tohighlight diseases such as diarrhea and pneumonia that kill millions of children worldwide but are not as well publicized asAIDS. Frist also plans to work with One Vote ’08, a project of the One Campaign that is supported by the Bill & MelindaGates Foundation that aims to press presidential candidates to focus on development issues, including children’s health.

The U.S. Department of Justice co-sponsored a civil rights convention organized by the Islamic Society of North America,an unindicted co-conspirator in the federal case against the Holy Land Foundation for Relief and Development, theWashington Times reports. The Holy Land Foundation was accused of funneling funds to the terrorist group Hamas, itselfdesignated a terrorist organization that has been shut down by the U.S. government.