Foundations

BIBLIOGRAPHY

The foundation may be defined as an instrument for the contribution of private wealth to public purpose. In this broad sense, foundations existed in antiquity and include perpetuities set up by the pharaohs for religious purposes, Greek and Roman endowments, and the ecclesiastical and charitable trusts made in Tudor England and later.

Early charitable trusts . For example, Plato established his famous Academy on land that Cimon the Athenian had given for public use. Before his death in 347 B.C., Plato directed that the income of his own adjacent fields should be used for the perpetual support of the school. This foundation survived nearly nine hundred years, until it was finally suppressed by the Christian Emperor Justinian in A.D. 529 for teaching pagan doctrines.

The corporate personality, able to receive and hold property in perpetuity, was primarily a Roman legal concept. In the Roman Empire during the first two centuries of the Christian era, foundations to aid the needy—usually associated with municipalities but sometimes private associations—became common. Under Constantine special laws were passed extending this principle to the churches.

The foundation in perpetuity (vaqf, vakif) has been common in Islamic countries. Examples of deeds of trust appeared in the early Hittite civilization (c. 1200 B.C.), but after the foundation principle was given specific approval by Muhammad it spread widely. A vaqf has been defined as the appropriation of a particular article in such manner that it becomes subject to the rules of divine property: the appropriator’s right in such objects is extinguished and they become the property of God, who returns the derivative benefits to his people. Three broad categories of obligation are recognized: first and foremost, a man’s duty to his own family; second, the maintenance of God’s worship according to the tenets of Islam; and, finally, charity in the everyday sense, including works of public utility. No world estimates of either the number or accumulated wealth of vakiftar are available, but they are reported to exist in considerable numbers in Turkey, Saudi Arabia, India, Iran, and other countries with substantial Muslim populations. In 1964 the Turkish administrator of vakiftar reported more than seventeen thousand properties under his supervision.

In England, after Henry vni dissolved the monasteries, the secular charities grew to such numbers that in 1601, under Elizabeth i, a special act was passed. Commonly called the Statute of Charitable Uses, it became the legislative cornerstone for the creation, control, and protection of such funds. The registry of charitable trusts compiled in the 1960s in England may record as many as 200,000, many of them surviving from Tudor and Stuart times.

As early examples of foundations in the United States, consider the two funds established in Boston and Philadelphia in 1791, under the will of Benjamin Franklin, to assist “young married artificers of good character.” Portions of these funds were to accumulate for two hundred years and are still accumulating. But the first substantial fund that corresponds to the more modern concept of a foundation was the Peabody Education Fund, set up in 1867 by George Peabody, with a principal sum of over $2 million to “aid the stricken South.”

Development of the foundation concept. About the beginning of the twentieth century the foundation idea began to take deeper root in American soil, and with a significant difference from the old concept of the fixed charitable trust. Large endowments were set up, often in perpetuity, but with wide latitude in their use. The new doctrine asserted that the funds of foundations are largely the venture capital of philanthropy, best invested in activities requiring risk and foresight that are not likely to be supported either by government or private individuals. The usual purpose is not relief or even cure; it is prevention, research, and discovery “to promote the well-being of mankind.” Characteristically, the larger foundations have great freedom of action, with their trustees devoting less time to conserving money than to exploring new and enterprising ways of spending it.

Andrew Carnegie was a chief architect of these ideas, first through his essay The Gospel of Wealth (first published as Wealth in 1889; see Carnegie 1886-1899) and then through the foundations he himself established. In 1902 he set up his first important foundation, the Carnegie Institution of Washington, “. . . to encourage, in the broadest and most liberal manner, investigation, research, and discovery, and the application of knowledge to the improvement of mankind” (“Articles of Incorporation” [1902] 1965, p. 577). In the same year John D. Rockefeller’s General Education Board was established with Mr. Carnegie as an active trustee.

Others that are now well known—like the Mil-bank Memorial Fund and the Russell Sage Foundation—followed rapidly. In 1911 various Carnegie benefactions culminated in the Carnegie Corporation of New York, the largest and most general of the Carnegie group. The Rockefeller Foundation, giant of the early foundations and still the world’s second largest, was initiated in 1913; in 1914 appeared the Cleveland Foundation, the first of the community foundations inviting multiple trust funds.

The first three decades of the twentieth century constituted a period of increasing but gradual growth. Of the 5,050 foundations with known dates of origin included in the latest Foundation Directory, some 285, or less than 6 per cent of the group, had been established by the end of the lush 1920s. The fourth decade, the depression 1930s, seemed scarcely conducive to accumulations of surplus wealth; and some foundations did disappear or find their assets severely impaired. However, the Foundation Directory tabulates 288 new foundations originating in that decade, including the incorporation in 1936—with an initial endowment of $25,000—of the now gigantic Ford Foundation.

Postwar growth . By the middle 1940s a new group of foundations had sprung up in various sections of the United States, induced in part by high postwar levels of taxation resulting from World War II. Many of these were family foundations, set up by a living individual, with contributions and direction closely held within the family group. Another large segment was composed of company-sponsored foundations set up by business corporations to receive substantial contributions in years of good profits—or especially high taxes—and to disburse these funds, through good years and bad, in customary patterns of corporation giving. Both of these types of foundations differ in one significant respect from the older, traditional type: they usually have no large initial corpus but carry on their often substantial programs with moneys received currently. They may eventually accumulate substantial assets, but presently they are conduit foundations rather than the fixedendowment type.

By 1964, date of publication of the second edition of the Foundation Directory, it was estimated that there were somewhat more than fifteen thousand foundations in the United States; but nine thousand were too small to meet the Directory’s size qualifications. Assets totaled $14,500 million, and grants were in the neighborhood of $800 million annually. These, however, are not large sums in the total American economy or even in its philanthropic segment. All foundations together are able to spend only about 8 cents of the annual dollar of private philanthropy. The significance of the foundation contribution lies in its special qualities and directions rather than in its gross total.

Moreover, although foundations are numerous and have been increasing at a rate of about 1,200 a year, most assets are in the hands of a relatively small number of large foundations. The 176 large foundations, each possessing $10 million or more, accounted for $11,000 million in assets, or 76 per cent of the total for the whole group. Among this group were 10 foundations with assets exceeding $150 million, headed by the gigantic Ford Foundation which, at market values of its stock holdings in late 1964, had assets of over $4,000 million.

The foundation as it exists in America has not spread extensively in other countries. England has less than a dozen foundations of substantial size which have freedom in programming. Canada has a growing number of foundations. A few examples exist in continental Europe, South America, Australia, India, and the Far East. In 1964 New Zealand issued its first directory (A Directory of Philanthropic Trusts 1964), including 63 trusts. Evidence increases of lively interest in other countries, and as surplus wealth becomes available and changes are made in tax structures, this typically American development may be extensively copied.

Types of foundations . Foundations differ so widely that description is difficult without some effort at classification. One such division is into grant-making and operating foundations. The former carry out their objectives by making gifts to independent agencies or persons and usually have small staffs merely to evaluate (or, in some cases, stimulate) requests for support. The latter themselves conduct operations in the fields of their choice and may have professional staffs of considerable size.

General foundations. Nearly all the larger, well-known foundations such as Ford, Rockefeller, Carnegie, Kellogg, and Sloan are general foundations. Operating under broad charters, they support the research projects in education, health, and welfare that characterize foundation work in the public mind. Usually they have large endowments, but some smaller foundations also support programs of national significance and properly fall within this category. Foundations of this type have a board of trustees (directors, managers) with broad interests, and a trained professional staff to serve as the “eyes” of the foundation, seeking out promising new ventures, evaluating projects offered, handling details of grants—or actual operations, if the foundation is of the operating type—and following through on results, so that future programs may be guided by past experience.

Special purpose foundations. Special purpose foundations are created—many of them by will or trust instrument rather than by incorporation—to serve a charitable purpose closely detailed, usually in the charter or -perhaps in a letter of gift. The purpose may be as narrow as that of the Prairie Chicken Foundation of Illinois, devoted to preserving remnants of prairie chicken flocks, or as broad as advancement of education. Criticism of such foundations is not directed against program concentration on particular needs or projects, as some of these foundations efficiently serve useful ends, but against rigid restrictions freezing concentration for a long period or perpetually.

Community foundations. Community foundations are composite foundations, usually set up as trusts rather than as corporations, and functioning under community control in a way seldom found in other philanthropic endowments. Capital gifts are received, and the principal is administered by the trust departments of local banks. Income is distributed, together with such portions of the principal as may be authorized in any trust, under the supervision and control of a distribution committee. The foundation reserves the power to transfer to other similar purposes any funds which can no longer be effectively used for the ends originally designated. The donors may be numerous; each donor may specify how his gift is to be used or leave it to the discretion of the distribution committee, but usually the use of the donation is limited to the city or county within which the community foundation is situated.

Company-sponsored foundations. Typically, the company-sponsored foundation is a tax-exempt, nonprofit legal entity separate from the parent company but with a trustee board consisting wholly or principally of corporation officers and directors. Except in the case of foundations associated with large national companies, their programs are likely to be confined to the communities within which the parent company has offices and to center on philanthropies that benefit the corporation, its employees, its stockholders, or its business relationships. They are conduit foundations in that they not only disburse their investment income, as do nearly all foundations, but typically receive substantial new funds every year, or at least every year of good corporate profits.

Family foundations. Family (or personal) foundations are usually established by a living person or persons rather than by bequest. Generally they are initially small and may have no administrative organization or headquarters other than the office of the donor or a law firm. The trustees are apt to be the donor or donors, his immediate family, and perhaps his lawyer, banker, or business associate. At the outset, programs may differ little from the personal giving of wealthy men and women who have not incorporated their charity and probably include gifts to the local community fund, hospital, the donor’s college or church, etc. Assets are no adequate measure of potential; such foundations may make substantial grants out of new annual gifts. Many of these initially small foundations may become recipients of large bequests upon the deaths of donors; and as experience accumulates, programs may change. Nearly all the large general foundations of today began as family foundations with limited funds oriented toward personal charities.

The relative numbers, assets, and grant activities of these five types of foundations are indicated by Table 1, taken from the Foundation Directory and including all American foundations of substantial size at the time of its publication.

Fields of foundation activity. Table 2 shows education to be the most favored field of foundation activity, although before large governmental expenditures were channeled into medical research, grants made in the field of health were equally important. Similarly, expansion of social security, private insurance and retirement plans, and increased governmental involvement in relief and similar fields formerly supported largely by voluntary contributions have resulted in declining foundation support in social welfare areas. The great recent expansion of research within educational institutions makes them logical channels for an ever-broadening stream of foundation activities in the sciences and international affairs.

The rise of international activities into second place is the most notable recent change, and later data indicate continuing growth in this area. Not all of these sums go abroad; many of these grants are made to American universities for area studies and like projects. It needs to be added that the Ford Foundation is the major factor in this increase in internationally oriented dollars, although other foundations have been entering the field or expanding their programs within it.

Welfare and health receive only modest foundation

support. Closer analysis of the data reveals that this pattern is characteristic of the larger rather than the small foundations. Some five thousand small foundations, for exar ’pie, gave 34 per cent of their grants in the field of welfare, as compared with a mere 6 per cent for foundations with assets above $10 million.

The sciences have been an expanding research interest. In the Directory tabulation, support for the physical sciences mounted to 40 per cent of the total science expenditure, with the life sciences—formerly the unchallenged leader—at 32 per cent. The social sciences received 28 per cent of the total.

Religion receives only 6 per cent of foundation grants, although as a category it receives an estimated half of all private philanthropic gifts in the United States. But most of this giving is done personally, rather than through a foundation, even where an individual could choose either channel.

The humanities come last in the Directory tabulation, at 5 per cent of the total. However, still more recent figures indicate a substantial rise in this area, stimulated through such special projects as Lincoln Center in New York.

Foundations in American society . Because foundations are numerous and some of them bear the names of wealthy families, a popular misconception exists that they have tremendous assets and are able to make almost unlimited expenditures. Relatively, the resources of foundations are not large in the American economy and may be shrinking. In 1913 the federal government’s total expenditures for education came to $5 million. The Carnegie Corporation of New York in that year spent a total of $5.6 million, so that if it had devoted all its funds to education, it could have more than equaled the federal government total. The Rockefeller Foundation is known around the world for its extensive fellowship program, on which it has spent $61 million in the past fifty years; but this total is less than the amount the American government spends in a single year today for its fellowship program alone.

Although in relative terms foundations constitute a minor segment of the American economy, their still considerable growth in numbers and in wealth has at times occasioned concern. As early as 1915 the Walsh Committee of the U.S. Senate charged that foundations were dominated by big business and were exerting strong conservative and reactionary influences. In the late 1940s it became evident that business enterprises in some numbers were seeking tax shelter under the foundation umbrella. To correct this and other abuses, the Revenue Act of 1950 set up “prohibited transactions” involving dealings between foundations and their donors or related persons. It taxes at ordinary corporation rates foundation profits from business enterprises not substantially related to the foundation’s tax-exempt purposes, and it makes unreasonable accumulations of income a basis for loss of exempt status.

In the House of Representatives in 1952 the Cox Committee, and again in 1954 the Reece Committee, held special hearings on foundations, concentrating on program; but the charge then was the opposite of the Walsh charges. The Reece Committee attempted to demonstrate that foundations and certain educational institutions were engaged in a “diabolical conspiracy” to weaken and discredit the capitalistic system in the United States and to promote Marxist socialism. Neither the Walsh nor the Reece thesis was supported by substantial evidence, and no legislation followed.

In the 1960s the spotlight turned back to financial aspects, with allegations that certain foundations were serving primarily as tax shelters and business conveniences for their donors.

Some present tendencies . A few foundations now have more than a half century behind them, and a substantial record of experience is available for all foundations. The administration of foundations is becoming professionalized. While there are no institutions of special training for this field, national and regional conferences, informal luncheon groups, and other similar devices increasingly offer opportunities for exchange of experience. Foundations have resisted the formation of any closely knit national association, perhaps because of the high degree of individualism that characterizes the field and perhaps partially to avoid charges of collusion and wealth concentration.

Literature in the field, once sparse, is rapidly increasing. About two hundred foundations issue printed reports, usually annually; and histories of a number of the older foundations have recently been published. A few critical studies have appeared, and more are in progress.

Foundations are in some respects unique among American social institutions. They are the only important agencies in America free from the political controls of legislative appropriations and pressure groups, and free from the lay controls of having to temper programs with the judgments and prejudices of current contributors. Because of this position of unusual freedom, the foundations have an opportunity—and perhaps a special responsibility—to attack the longer range, more difficult, and often controversial questions which face the nation and the world; and many of them do spend a substantial part of their funds in pioneering ventures that would have difficulty in obtaining support from other private sources or from government.

F. EMERSON ANDREWS

[See alsoPHILANTHROPY.]

BIBLIOGRAPHY

ANDREWS, F. EMERSON 1956 Philanthropic Foundations. New York: Russell Sage Foundation.

ANDREWS, F. EMERSON 1958 Legal Instruments of Foundations. New York: Russell Sage Foundation.

ANDREWS, FRANK M. 1960 A Study of Company-sponsored Foundations. New York: Russell Sage Foundation.

Articles of Incorporation. (1902) 1965 Carnegie Institution of Washington, Yearbook 64:577-579.

CARNEGIE, ANDREW (1886-1899) 1962 The Gospel of Wealth, and Other Timely Essays. Cambridge, Mass.: Belknap Press. ⇒ Contains articles first published in various periodicals.

Community Foundations in the United States and Canada: 1964 Status. 1965 New York: Council on Foundations.

A Directory of Philanthropic Trusts. 1964 Wellington (New Zealand): Whitcombe & Tombs.

EMBREE, EDWIN R.; and WAXMAN, JULIA 1949 Investment in People: The Story of the Julius Rosenwald Fund. New York: Harper.

FORD FOUNDATION 1949 Report of the Study for the Ford Foundation on Policy and Program. Detroit: The Foundation.

FOSDICK, RAYMOND B. 1952 The Story of the Rockefeller Foundation. New York: Harper.

FOSDICK, RAYMOND B. 1962 Adventure in Giving: The Story of the General Education Board, a Foundation Established by John D. Rockefeller. New York: Harper.

Foundation Directory. 2d ed. Edited by Ann D. Walton and Marianna O. Lewis. 1964 New York: Russell Sage Foundation.

Foundation News. ⇒ Bulletin of the Foundation Library Center. Published since 1960.

GLENN, JOHN M.; BRANDT, LILIAN; and ANDREWS, F. EMERSON 1947 Russell Sage Foundation: 1907-1946. 2 vols. New York: Russell Sage Foundation.

GREAT BRITAIN, COMMITTEE ON THE LAW AND PRACTICE RELATING TO CHARITABLE TRUSTS 1952 Report. Papers by Command, Cmd. 8710. London: H.M. Stationery Office.

HOWARD, NATHANIEL R. 1963 Trust for All Time: The Story of the Cleveland Foundation and the Community Trust Movement. The Cleveland Foundation.

KEELING, GUY W. (editor) 1953 Trusts and Foundations: A Select Guide. Cambridge: Bowes & Bowes.

KELLOGG (W. K.) FOUNDATION 1956 The First Twenty-five Years: The Story of a Foundation. Battle Creek: The Foundation.

KEPPEL, FREDERICK P. 1930 The Foundation: Its Place in American Life. New York: Macmillan.

KIGER, JOSEPH C. 1954 Operating Principles of the Larger Foundations. New York: Russell Sage Foundation.

LINDEMAN, EDUARD C. 1936 Wealth and Culture: A Study of One Hundred Foundations and Community Trusts and Their Operations During the Decade 1921-1930. New York: Harcourt.

LOMASK, MILTON 1964 Seed Money: The Guggenheim Story. New York: Farrar.

MACDONALD, DWIGHT 1956 The Ford Foundation: The Men and the Millions. New York: Reynal.

NATIONAL INDUSTRIAL CONFERENCE BOARD 1955 Company-sponsored Foundations. Studies in Business Policy, No. 73. New York: The Board.

NEW YORK UNIVERSITY 1963 Proceedings of the Sixth Biennial Conference on Charitable Foundations. Edited by Henry Sellin. New York: Bender.

RUSK, DEAN 1961 The Role of the Foundation in American Life. Claremont (Calif.) Colleges.

SHAPLEN, ROBERT 1964 Toward the Well-being of Mankind: Fifty Years of the Rockefeller Foundation. Garden City, N.Y.: Doubleday.

U.S. CONGRESS, HOUSE, SELECT COMMITTEE ON SMALL BUSINESS 1962 Tax-exempt Foundations and Charitable Trusts: Their Impact on Our Economy. Chairman’s Report, 87th Congress. Washington: Government Printing Office.