Private Assets and Public Space: A Conversation with John Tyler, Steve Johnson, and William Dietel

Friday, September 25, 2009

John TylerSteve JohnsonWilliam Dietel






One of the philanthropic sector’s most intriguing debates is on the nature of charitable funds—whether they are simply the private assets of autonomous entities or, due to the tax-exempt status of foundations, deserve some additional measure of public oversight or government regulation. In this Thought Leaders post, John Tyler (left), co-author of a recent monograph examining the issue;Steve Johnson (center), Vice President at The Philanthropic Initiative; and William Dietel, Former President of the Rockefeller Brothers Fund, discuss the issue with Smart Assets.

John Tyler:
There has been an increase in the number and breadth of prescriptive proposals from both government and within philanthropy to impose legal limits on the purposes that philanthropies may serve, the strategies they may use to pursue these purposes, and the means by which they may govern themselves. Some of the proposals would require adopting externally determined goals, such as requiring boards and programs to represent the community or mandating pursuit of broad-based social justice purposes.

The reach of these proposals reflects the increasingly broad claims being made about the public’s purported right to direct philanthropic organizations—because, proponents assert or assume, philanthropic assets are “public money.” If philanthropic assets are public money, the argument goes, then it follows that the public may impose rules concerning their expenditure and governance of the entities that hold them. This view affords few principled limits on the right of the public to direct philanthropies and their funds and jeopardizes the balance and many benefits such organizations provide to our civil society.

monograph recently published by the Philanthropy Roundtable, which I co-authored with Evelyn Brody, scrutinizes the legal framework on which the public-money argument rests. We analyze the three theories generally asserted for the public-money argument and conclude that the argument lacks legal merit.

Given the space limitations here, I will summarize the most common justification for the public-money argument, which is grounded on government forgoing revenue by exempting organizations from taxation and providing deductions to donors. However, this argument fails for at least three reasons (we discuss five in the monograph). First, this position misstates the covenant that underlies the tax treatment, which requires pursuit of charitable purposes that may or may not include purposes of government or even the public broadly. Second, most charitable assets do not come from the munificence of government but are from private funds. Third, tax benefits afforded individuals and businesses are not the basis for eroding their autonomy, independence, or privacy or otherwise asserting control over them. Such erosions and assertions derive from non-tax based reasons.

This is not to suggest that government may not regulate foundations or other charities. It may do so in appropriate circumstances, recognizing that applicable legal precedents validate the importance of philanthropic independence, respect philanthropies as private entities, and accord them the right to autonomy without undue government or public direction and control. Regardless, it would be inappropriate to undermine such independence or otherwise violate that autonomy on the grounds that philanthropic assets are “public money.”

Steve Johnson & William Dietel:
While Mr. Tyler is basically correct—private foundation assets are essentially private money, at least legally speaking—there are much larger and arguably more important questions on the table here: What are private foundation resources really about? Whom are they meant to serve? What are our responsibilities as stewards of social capital?

After many years in the business, our view is that private foundation assets are essentially “private funds deployed in public space.” In this sense, they have characteristics of both private and public money.

What the law requires and provides in letter and verse is a mere beginning to the unraveling of truth and fairness in American law, and in society. It was with this recognition that the courts of Equity were created centuries ago in Anglo-American law, to ensure that common sense and public principles continued to play an important role in law, justice, and the community; to supplement—or in spite of—the “black letter law” of statute.

Can private foundations legally direct their giving to the four corners of the globe, to the four (hundred) causes that they may understandably view as social—or family—priorities and passions? Within limits imposed by federal and state law, yes. But the right to do so aside, what is the opportunity for us, as donors, as foundations, as public and private citizens/foundations, to best serve the public, to best create the future we wish our children and their children to inhabit?

The opportunity to “make a difference” in the world, in our communities, in the application of philanthropic assets (or, if you prefer, “social capital”) is endless. But what kind of difference? On September 10th, the Census Bureau reported that scores of thousands of American families—and hundreds of thousands of children—fell below the poverty line in the last 12 months. Is there a hierarchy of social needs on which we—with the ability and the privilege to make a small difference with our personal/social capital—should make higher priorities, above our less-socially-targeted passions and causes? (And we all have them, fairly enough.) Reasonable minds can differ on this question.

But as Peter Karoff, Founder of The Philanthropic Initiative, wrote recently on the need to carefully consider the “Moral Dimension of Philanthropy”:

  • How can we elevate the importance of the moral dimension in the practice of philanthropy and social action, which is at its core the responsibility and opportunity of private action in “the public space?”
  • How can we elevate and illuminate our integrity of purpose, the integrity of the process, and the integrity of philanthropy in the public space in which we exist?

These are important questions, and we invite all those of good will to the table—and there are many tables—to join us in exploring such issues. This is an opportunity that does not come every day.

Congress is watching, as it should and must, albeit with a stigmatism and a limited understanding of the sector.

Carpe diem, fellow travelers in this world of philanthropy, of opportunity, of stewardship, of human need, and of “civil disagreement” (to cite President Obama). Join us in this civil dialogue with good will, open minds, open hearts.

John Tyler is the General Counsel, Secretary, and Chief Ethics Officer of the Ewing Marion Kauffman Foundation. In pursuit of its vision, and in keeping with its founder’s wishes, the foundation focuses its operations on advancing entrepreneurship and improving the education of children and youth. Mr. Tyler also is a frequent presenter and author on such diverse topics as nonprofit governance, private foundations, intellectual property, and advancing university innovation. He is the co-author (with Evelyn Brody) of the monograph How Public is Private Philanthropy? Separating Reality from Myth (Philanthropy Roundtable, 2009).

Steve Johnson is a lawyer and former Senate counsel, and Vice President at The Philanthropic Initiative, Inc (TPI), which for 20 years has supported committed donors in achieving their philanthropic and societal goals worldwide. TPI also seeks to advance the understanding and impact of philanthropy through research, writing, and public dialogue. TPI has offices in Boston, Vermont, and California.

William Dietel was the President of the Rockefeller Brothers Fund from 1975 to 1987. He is now a partner in Dietel Partners, a philanthropic consulting firm advising families and individuals with serious philanthropic interests. Dietel Partners has offices in Virginia, Chicago, and Portland. Mr. Dietel is a graduate of Princeton University and holds a Master’s and doctoral degree from Yale University. He also studied at the Institute of Historical Research at the University of London.


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