We are at a moment where philanthropy needs to rethink its compact with society, its role in solving public problems, and its pathways to funding large-scale change. However, as trustees deliberate how to meet the biggest challenges of the moment, one issue they can take off the table is whether founding intents should constrain their conscience. Our research shows that foundation boards have room to maneuver, perhaps more than they realize.

In a study we’ve made of the articles of incorporation and bylaws of the top 50 private foundations in the U.S., funded by Lodestar Foundation, we found no indication that founding intent, nor endowment recovery, prevented or constrained trustees from leveraging endowment dollars when they felt that circumstances and mission merited it. We even found a surprising amount of fluidity in amending intent, where trustees felt compelled to do so. And perpetuity foundations like Carnegie Corporation, James Irvine, and Annie E. Casey (AEC) are paving the way to changing the everyday payout norm: all three have for years targeted payouts greater than the IRS-required minimum of 5 percent of investment assets, with AEC paying out from 6.6-to-10.5 percent per annum for the past decade.

To assess the relationship between endowment recovery and risk-taking, we looked at major pandemic recovery commitments vs. foundations’ endowment recovery from the Great Recession of 2008-09 (calculating in 2007 dollars, removing founder or founder-family controlled foundations from the list to focus on those guided primarily by founding documents). Only four endowments were fully recovered by 2018: Irvine (perpetuity), David and Lucile Packard Foundation (non-perpetuity), Robert W. Woodruff Foundation (perpetuity), and Lilly Endowment (non-perpetuity). Among the 25 foundations without a living founder/founder’s family, the spread of endowment recovery ranged nearly 100 percentage points, from an inflation-adjusted 64 percent (AEC, incorporated in perpetuity) to 161 percent (Lilly, whose articles empower the board to give with “uncontrolled discretion, all or any part of the corporation's income as well as all or any part of the corporation's corpus or principal assets”).

To roughly estimate endowment recovery beyond publicly available financials, we projected rates through 2020 in 2007 dollars, pegged to the S&P’s trajectory of the past two years through June, assuming foundations maintained stable investment strategies (which, of course, not all did). The results forecast only seven endowments recovered by 2020. However, neither recovered nor enlarged endowments, be they founded in perpetuity or not, were most aggressive in COVID-era decisions to increase payouts.

Instead, on June 11, five foundations not projected to be recovered from their pre-recession high-water marks (Ford Foundation, John D. and Catherine T. MacArthur Foundation, Doris Duke Charitable Foundation, W.K. Kellogg Foundation, and Andrew W. Mellon Foundation) announced they each would issue a bond to increase their collective grant-making more than $1.7 billion over the coming two years in response to COVID-19. Last month, Rockefeller Foundation, also projected not to have recovered, announced it would make $1 billion of grants to ensure a “green and inclusive recovery” from COVID-19, drawing on resources from its endowment and a bond offering. Three of these foundations—Ford, Doris Duke, and Kellogg—were founded explicitly in perpetuity. Founding intent notwithstanding, their boards of trustees were able to justify aggressive, financial decisions in keeping with the times and their collective conscience.

In all, 34 of the Top 50 foundations in the U.S. (73 percent by assets) have either living donors, are family controlled, or are not founded explicitly in perpetuity. It follows that their boards could decide to multiply payouts for crisis response, within institutional guidelines for prudent spending, either without a formal process to amend foundation intent, or with a fairly rapid one.

Read the full article about foundations' pootential by Katie Smith Milway and William Galligan at Stanford Social Innovation Review.