Most of the time, it feels good to give away money. Think of Warren Buffett, who last month was cracking jokes as he handed over most of the world’s second biggest fortune to the Bill and Melinda Gates Foundation.
“That’s a better hand than I get at a Berkshire Hathaway meeting,” he said as he began signing the letters that gave away the bulk of his wealth to five foundations. Saving the Gates for last, he joked: “Don’t lose that letter.”
On the dais at the New York Public Library with another great philanthropist, David Rockefeller Jr, in the audience, Bill and Melinda Gates chatted amicably with Buffett on the day of his announcement. This was the face of success begetting success. The $31bn from Buffett would accelerate the cutting-edge malaria and HIV programmes the Gates Foundation is leading.
They could feel justified in accepting some public acclaim and, for many people around the world, it will probably feel good to receive a slice of the Buffett largesse.
But not every lavish press conference yields the outcome the philanthropist desired, and a smile like Buffett’s can quickly turn to a scowl. Every so often, it does not feel so good to have given away money. Nothing is worse than philanthropy gone wrong.
Consider Alberto Vilar, whose pledge of $20m to the Metropolitan Opera came with significant demands, including his name inscribed in big letters on the grand tier. Vilar, a fund manager and huge patron of classical music who loved the opportunity to mix with opera singers, could not make good.
The same applied to various other musical organisations to which he had pledged money. His name has been removed from what was once the Vilar Floral Hall at London’s Royal Opera House in Covent Garden, and these days he has bigger problems as he awaits trial on fraud charges re-lated to his Amerindo Investment Advisors.
The Met, however, was bailed out by Sid Bass, who stepped in with a $25m pledge. Interestingly, the Bass family had been on the flipside of such a decision a decade ago when Lee Bass, a brother, had his $20m donation to Yale University returned. The faculty decided it could not tolerate his request that the money fund courses in western civilisation.
Sometimes the donor – and not the strings he attaches – can be the problem. Oxford University once returned a donation from Gert-Rudolf Flick to establish the Flick Chair of European Thought, on the grounds that it was tainted by Nazism – Flick’s grandfather had built his industrial empire as an adviser to Heinrich Himmler.
Then there are donors who want their money back. This was the case last year with Peter Lewis who became fed up with the way Thomas Krens was running (and expanding) the Guggenheim Museum. Lewis resigned as chairman of the board, having given the museum $77m over the years. Earlier this year he gave $101m to Princeton, the biggest gift in university history, bringing his total there to $220m.
Yet there is a Princeton donor just as unhappy with the university as Lewis was with the Guggenheim. The heirs of Charles Robertson, the founder of the A&P supermarket chain, have been battling with the university over how it has administered a $35m gift to the Woodrow Wilson School of Public Affairs.
That gift was made in 1961 and is now worth $653m, just under 10 per cent of the university’s endowment. It provides another insight into how even a successful gift to a highly successful institution can lead to discord.
The donors claim that the money is now being used for purposes that diverge from their founder’s original intent, which they say was to train US diplomats. Meanwhile, the university says that the question posed by the case is not what the donors had in mind but what the foundation was created to do.
Princeton contends that the Robertson Foundation was established to expand and support the graduate program at the Wilson school, and that the mission of the foundation was discussed at length by Charles Robertson and the university’s president before the certificate of incorporation was finalised and approved.
It contends that it was already clear at this point that a liberal arts college and research university such as Princeton would not be an appropriate place for a narrowly drawn training programme along the lines now supported by the plaintiffs.
The one thing all these sorry incidents have in common is that they caused pain and embarrassment for the participants. But from such drama comes basic advice that could be of use for other donors – including even Buffett and Gates.
“The lesson there is that the charity has a good-faith responsibility to the donor,” says Hank Goldstein, chief executive of the Oram Group, a philanthropic ad-viser in New York, of the Princeton situation. In this case there was a disagreement about what was or wasn’t what the donor thought he was giving to. It is rare but it sends a very important signal, whether it is Princeton or anywhere else.
“When a gift is made by a donor the recipient has an obligation to make sure that gift is used for the purpose the donor made it. You can’t guarantee anything in perpetuity but if you have good documentation – so it’s clear what the original intent was – it seems to me that you have a much stronger case to rely on.”
And that is the crux of most donor-recipient problems – not malice but misunderstanding. Donors and recipients come to blows over everything from donor intent to a charity’s reporting ability.
Wealthy benefactors, who generally made their money in the private sector, tend to have high expectations of charity managements. An executive who is used to quarterly reporting of re-sults cannot always expect to receive the same from a charity, which simply may not have the resources to fund such reporting.
“The donor and the recipient need a shared understanding on how the results are going to be measured and reported,” says Melissa Berman, president and chief executive of Rockefeller Phil-anthropy Advisors. “If it hasn’t been worked out, the donor thinks the money has gone into a black hole and doesn’t fund that organisation any more.”
Lest the charity take all the blame, donors often run into trouble with their own foundations. “On one level it’s keeping your foundation above reproach,” says Lisa Philp, vice president at JPMorgan Private Bank. “Foundations are legally bound to do certain things. It’s not rocket science but there are basic rules.”
These requirements are simple enough – give away 5 per cent a year of your assets, classify your assets correctly, and so on. But the Council on Foundations has put out a pamphlet entitled, “The Top Ten Ways Family Foundations Get Into Trouble”, that marks the point where the slope becomes slippery.
Number one is to avoid “self-dealing and disqualified persons”. In essence this means you do not write yourself a loan from the family foundation and do not pay for the executive director to meet his equal in Antibes. Anything like this will rupture confidence in the foundation and limit its chances to do good in the future.
Another danger is to avoid harmful competition. Philp suggests a “do-no-harm” framework to be applied before the donor has even laid down the aim of the foundation. Rather than do something well-meaning in a community that will provoke resentment and competition, she suggests “do a scan of the field, what has been done, and the lessons learned from past endeavours”.
Berman adds that a common mistake is for people to think they are funding the problem, not the solution. This often sets donors up for failure. “They say poverty is the problem, so I’m going to give some money to an anti-poverty organisation. What they haven’t asked themselves is how making a change in poverty can happen, and then what organisation is working along those lines and how do I go about giving to them.”
This means the charity needs to have a good idea how to measure and track its results. Successful business executives ready to give away their money are generally used to setting criteria for the people who work for them. Similarly they expect charities to be able to measure their impact.
If the problem is very big, making an impact is that much harder. Only someone such as Gates can target problems as severe as AIDS in the developing world. Berman says this also leads to “failed” philanthropy as donors feel disappointed that their money has not effected the changes they hoped for. “It’s hard to see an impact when you’re dealing with poverty or the US education system,” she says.
A sensible response can often be for foundations to give themselves relatively limited – and thus achievable – goals. “We ask people to think how philanthropic dollars can make a change,” says Berman. “Then you’re at a point where the donor and the recipient have a common view of how to address the issue. The second thing is to be really explicit about how you want your gift spent before you give it. ‘I want to understand how you go about using this money and I want to get reports on this’.” Somehow, it is easy to imagine that Buffett asked his richer friend Gates exactly such questions before parting with his billions.
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