May 13, 2008

The Absence of Debate in Perpetuity

by Tim Ogden

The Council on Foundations Summit was notable to myself and others for the overwhelming lack of substantive debate on just about anything. Sessions generally featured a group of panelists who agreed with each other and spoke to an audience who agreed with them. There were few notable exceptions to this trend (one being a discussion on the pros, cons and future of venture philanthropy between Ed Skloot—former president of the Surdna Foundation and now at Duke University—and Paul Shoemaker—founder of Social Venture Partners).

This lack of productive debate was particularly problematic during a “mini-Summit” on “Philanthropy and the Economy” held at the Commerce Department. One of the moderators for the day addressed the audience as the “trustees of America’s permanent charitable resources.“ Outside of the foundation world it seems people are asking questions about the value of perpetual foundations. These questions have been in part spurred by the Gates Foundation mandate to spend its assets soon after the Gateses’ deaths. Yet within the Council on Foundations it apparently isn’t even a question. Ellen Shuman, Chief Investment Officer at the Carnegie Corporation and one of the “Philanthropy and the Economy” panelists did a quick poll of the nearly 300 audience members and discovered that only two represented foundations with a mandate to spend down their assets. Ms. Shuman presented on the Carnegie Foundation’s investment strategy. During the Q&A following Ms. Shuman’s presentation I asked at what point the United States would have enough “permanent charitable resources” given that foundation endowments are growing much faster than the US population. The question was largely brushed aside. Ms. Shuman noted that she didn’t need to have an opinion since Andrew Carnegie had decreed perpetuity for the Corporation.

Of course, a founder’s wishes should guide the employees of his institution but they don’t trump sound thinking on public policy. While there is a clear benefit in institutions that can take a multi-generational approach to a problem, there is also a downside to locking up a huge amount of funds (currently estimated at $550 billion) in permanent foundation endowments. A real debate on this issue, particularly around public policy approaches to balancing the pros and cons, would be very useful.

Ms. Shuman’s presentation also illuminated the lack of real debate at the Summit on mission-related investing (MRI). MRI was the subject of at least three sessions at the conference, yet there were few questions being asked on either side. Ms. Shuman did not once mention the concept during her hour-long discussion nor did anyone ask a question about it. Shortly thereafter, there was a session including a representative from the Jessie Smith Noyes Foundation, a leader in and a leading advocate of MRI, and Charles Piller, the reporter from the LA Times who wrote a sensationalist series of stories about the Gates Foundation’s investments. As might be expected, the two panelists were in violent agreement with each other. But neither referenced the Carnegie Corporation’s portfolio approach, nor Ms. Shuman’s contention that modern portfolio investing is required to generate the returns necessary to maintain the “spending power” of an endowed foundation.

Perpetuity and mission-related investing are complicated questions. There aren’t easy answers nor a clear path to arriving at appropriate decisions for donors. That’s why a real debate on these issues would have been so valuable.