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#328 – Aligning Donor Intent with Donor Practice: Not as Easy as it Sounds.

January 10th, 2019

Richard Marker

This post is the second of a series on “Alignment” as funders – aligning our values, our staffing, our funding, and our intentions. Clients and those who have participated in our educational offerings are well aware of this thinking, but I have not previously published these practica. Please see #328 and #330 for the other installments.

The series focuses on three necessary preconditions for the successful implementation of a funding strategy. It assumes that readers already have chosen what kind of structure in which they are making these decisions – e.g., a private foundation or a DAF or an LLC, et al. For those readers who are still deciding among those options or when to use which, please feel to be in touch directly since those choices are beyond the scope of this series.

A. About a dozen years ago, I was approached by 2 third generation family members who were struggling with a dilemma. Their grandfather’s instructions were to use the foundation to support “conservation” but didn’t want any of it to go to “environmentalism.” Even if they understood the implicit political leanings in their instructions, how to implement this was proving a challenge. After all, any meaningful “conservation” funding was, of course, a form of commitment to the environment.

B. Many readers, I suspect, are familiar with another challenge of donor intent. A foundation was created “to keep the family together” – as if a lifetime of disfunction or rivalry can suddenly be eliminated because the family members are now forced to sit at the same funding table. Money may go out the proverbial door, but just having a philanthropic vehicle isn’t likely to solve unresolved family issues.

C. A similar dilemma is seen by this not uncommon scenario. The founder wanted the family to come together to make philanthropy decisions, but the organizational recipients or the geographic parameters are so tightly structured that the successor board members are all disenfranchised before they begin. What incentive do they have to participate?

D. Recently, a foundation affirmed that they did not want to support any “social justice” initiatives, when, in fact, they have a long and continuing practice of anti-poverty funding. What might that mean in practice – now and in the future?

E. And then there are those who choose to leave their intentions unstated, freeing subsequent trustees to struggle about what, if any, guidelines should apply. Should they extrapolate from the founders’ own priorities or practices? Is that liberating – endowing future generations with complete freedom – or a sign that the founder was reluctant to face his or her own mortality? What if the kinds of funding the founder chose to do are at odds with the preferences – for whatever reasons – of successor generations? Should they be free to start their thinking de novo, as if no precedent applies? And, finally, in the absence of stated expectations one way or another, is the default assumption that a foundation should exist in perpetuity?

Since the majority of funding entities, especially foundations and donor advised funds, are personal or family oriented, the matter of donor intent is not abstract. In families, every decision is personal and how family members choose to interpret or implement donor intent[ or its absence] can be read as a commentary on his or her relationship to the family, its values, its history, and its legacy. And commentaries can be affirming or judgmental, not always endearing, to others at the table.

An approach:

As we have shown in prior articles, in most cases, differences of opinions are not necessarily reflections of character flaws at all but may simply be differing but legitimate approaches to philanthropy. I have found that one helpful way to address this is to begin the process by identifying guidelines of what should always be off limits – that is, what should never be funded – because it would have been abhorrent to the founders or would violate their stated intent.

“Negative” guidelines are often easier to address than positive ones. The process can allow wholesale dismissal of entire categories, no matter the merit or type of grant requested. It even can make procedures more efficient especially with on-line guidelines or systems. Insofar as they help address our topic, families can usually agree on these guidelines more easily than those that are inclusive. At least in my professional advisory experience, it has often proved the easiest and quickest way to get at the discussion of what should be on the decision-making table where the real hard work begins.

Problem Solving:

To illustrate the way “alignment” works, let us revisit the 5 scenarios above to see what might make sense or be helpful in each case.

A. The third generation chose to apply a “conservative” approach to their approach to “conservation.” While they fully recognized that government action can be exponentially more protective, and therefore leverage a conservation commitment, they chose to restrict their funding to the localities and regions where the family lived, and where their decisions would be respected as personal commitments. Their reluctance to engage in advocacy or larger issues was a reluctance to challenge an implied intent, even if, they acknowledged, that mission might be addressed more effectively, and more in keeping with the values of the third generation’s values and priorities through advocacy.

B. There is no single or best practice answer to this one and I suspect that any of us in this field have helped resolve the challenge in a variety of ways. Sometimes, the foundation is large enough and its reach broad enough that the family can simply delegate the operation of the foundation to staff and perfunctorily go through the motions when required. Or perhaps, to set it up so that it is a single foundation in name only but functions as multiple entities under a single rubric. The Foundation continues, but no one is forced to make joint or mutual decisions.

In other occasions, even that may prove too uncomfortable, so the family may decide to close the foundation with a limited number of larger gifts honoring the founders or, perhaps, turn the corpus over to a Donor Advised Fund [see C below.]

C. When the founder/funder tries to “rule from the grave” it invariably backfires. Some in the second generation may feel a sense of obligation to their parents, but very few in subsequent generations will. They may live in different places, have different priorities, or merely not want to waste their time pretending to make decisions that are pre-determined. This is a case where a Donor Advised Fund may be an ideal solution – at lower cost they can manage and honor the founders’ restrictions, and still, nominally at least, keep the family in the loop. [This can work as a partial solution if only some of the institutional commitments are pre-determined. It means that the family or board can concentrate their energies and attentions on matters where their deliberations matter.]

D. When the words and actions diverge, it presents a real cultural challenge to funders. As in “A”, none of us in naïve about the political leanings of the founders, so what should subsequent trustees do – especially since poverty alleviation is always about addressing unfairness and social justice?

This is a case where “alignment” needs to rely on Stage 1 of the strategy process, understanding the implicit “cultures” of the foundation and those in the room. [A process alluded to in post #326 and developed more fully in numerous prior articles.] That process, if done well, has already clarified preferences regarding risk, recognition, involvement, and more. By articulating the how and why of this foundation’s poverty alleviation commitments, it can obviate the need to rely on politically loaded terms about which trustees may disagree.

E. Unarticulated intent is both the most liberating and puzzling at the same time. It happens quite frequently. Often, an attorney is more committed to creating an estate motivated vehicle than fully exploring the philanthropic needs of the family or even the client. [You would be amazed how frequently foundation Articles of Incorporation are little more than boiler plate documents reiterating basic foundation law with virtually no attention to motivation or function.]

In my experience, this has led to a variety of responses. In more cases than one might imagine, the 2nd generation did not even know a foundation existed before the founders died. To take but one example, after a difficult few years trying to make sense of it all, the responses of the third generation proved decisive: they didn’t care where the money went – only that it afforded them the opportunity to connect as an entire family on a regular basis. Once that happened, it obviated the tensions among the 2nd Gen siblings, and led to an affirmative raison d’etre of the foundation.

In another case, an unusually magnanimous founder explicitly articulated her reasons for not formulating messages to successors. She pointed out how the world had changed in her lifetime, her perspectives had evolved over her lifetime, and her understanding of the world was certainly not the same as when she was young. Certainly, future generations would be faced with a very different world and they needed the same autonomy to face their radically changing world. In my experience, there aren’t that many folks who think that way,

Most often, the absence of donor intent serves to handcuff the successor trustees as much as it liberates.. It means that everything is on the table including how committed they need to be interpreting what might have been intended but unsaid, how long to exist, how open-ended their process, how extensive their reach, how open to risk. At the end of the process, if done properly, the successors will have developed an integrated aligned funder approach that works for them and has the impact they desire. If not, it can lead to years of ungratifying grantmaking and having much less of an impact than the resources would allow.

It is worth doing properly.

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