Foundations

Nicole Brooks
4/27/2010

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 Foundations have been used by the wealthy to create positive

publicity and goodwill, particularly when done in opposition to

their business practices. John D. Rockefeller, Andrew Carnegie,

and Henry Ford created three of the largest foundations in the

United States in the 20th Century. They were each founded for

distinct reasons that ranged from tax shelters to personal

motivation to public relations. To this day the foundations still

carry on the spirit of their founders, some of these foundations

continue to give the minimum amount, choosing to work more on

perpetuating their founders name than changing the world. Others

choose to see the minimum payout as just that, a minimum, and

while their foundations have less in terms of assets they give

out significantly more in grants.

The origins of foundations lie in the charity houses and

religious orders of Europe, but American foundations have taken

on a distinct identity. According to Anheier, European

foundations came out of a largely religious background, tied

directly to the feudal social structures of the time. To this day

European foundations are quite distinct from their American

counterparts. They have significantly less assets and are

generally volunteer run. On the other hand American foundations

have existed throughout American history but more recently,

particularly in the Twentieth Century, they have moved to the

forefront of philanthropy whereas European foundations have seen

a decline. Anheier discusses some of the key characteristics of

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Twentieth Century American Foundations includes what Clotfelter

and Ehrilich call ‘germ theory philanthropy’ (Clotfelter). This

is the idea that all social ills have some root cause that if

found and fixed will eradicate the problem. Twentieth Century

American foundations also were characterized with professional

staff, evolving program goals, and it has been noted,

“foundations are a ‘unique American answer’ to the problem of

excess wealth in a society with limited income redistribution.”

(Anheier)

The Gilded Age created a super class of American Wealth. New

industrialists like John D. Rockefeller, Andrew Carnegie, and

Henry Ford created and expanded industries that caused them to

become some of the wealthiest men in the world. Their choices of

what to do with their wealth reflected the circumstances of that

wealth.

Some like Rockefeller followed the path of philanthropy that

had started before they became wealthy, others like Carnegie used

their wealth to try and improve their public image, and others

like Ford used philanthropy and foundations as a means of

avoiding taxes. For whatever reason they were created the

Rockefeller Foundation, the Carnegie Corporation and the Ford

Foundation remain three of the largest foundations in the world.

Even years after their founders had died, and long after the

original businesses no longer existed the foundations live on as

a testimony to their founders stories.

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 The definition of foundations is based on their function of

transferring wealth from donors to institutions that then use

those donations, as well as any addition wealth gained from those

donations, to address specific issues. The Foundation Center uses

this definition for foundations

A nongovernmental, nonprofit organization

with its own funds (usually from a single
source, either an individual, a family, or a
corporation) and program managed by its own
trustees and directors established to
maintain or aid educational, social,
charitable, religious, or other activities
serving the common welfare, primarily by
making grants to other nonprofit
organizations (Anheier).

Legally foundations are considered a trust, meaning there is a

relationship between property in most common law countries this

is the end of the legal definition using case law to develop

foundation law. But again the US differs from the norm and in

1969 the IRS established a more precise definition that says that

foundations are organizations that receive the majority of their

resources from one source and are considered donor-controlled. In

the United States the turning point in foundation history came in

1844 with a unanimous Supreme Court decision upholding Stephen

Girard’s will that left the bulk of his fortune to the city of

Philadelphia in order to start a school for poor, white orphan

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boys. This decision made it easier for the transfer of property

to charitable corporations (foundations) and for those

corporations to go forward and fulfill the donor’s wishes

(Clotfelter).

Foundations fall under a variety of different types the most

common being grant-making foundations. Some of the largest

foundations including the Ford, Rockefeller, Carnegie, and

Kellogg foundations are all grant-making foundations. Over ninety

percent of American foundations fall under this category. In

contrast the majority of European foundations are operating, or a

combination of operating and grant making (Anheier). Operating

foundations work to control their own programs and projects, this

mostly includes hospitals, orphanages, schools, and universities.

The other types of foundations are corporate, community, and

government-sponsored.

Foundations exist in order to utilize private funds to the

‘greatest public benefit possible’. They work outside of direct

external control, which allows them to do work in fields

typically fraught with controversy. According to Anheier

foundations that engage in grant making can tend to fall under

three different categories. These categories include acting as a

‘gift-giver, investors, or collaborative entrepreneurs’

(Anheier). Each has its share of positives and negatives. Gift-

givers can be seen as passive funders or as trusting funders who

encourage trying new ideas. At the other end of the spectrum

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entrepreneurial foundations work closely with grantees to make

sure that those organizations are using the grant in new

innovative ways and that the money is being well spent. This can

be positive in it allows foundations to be creative and insures

that their money is utilized in the best possible way. On the

other hand foundations can become heavy handed when working as a

collaborative entrepreneur, foundations can stifle the creative

process of individual organizations, which weakens their ability

to do what they do best.

Rockefeller

John D. Rockefeller knew that his reputation was dependent

upon public opinion, and he paid to make sure that attitude was

favorable. Years of public philanthropy were used as a means of

balancing out his not so favorable public business image.

According to Horowitz and Collier, Rockefeller did not ‘discover’

charity long after he had gained his wealth, like some of his

peers. Horowitz and Collier reference Gould and Fisk whom they

say as using philanthropy to ‘salve a guilty conscience and

burnish a darkened reputation’. Instead, Rockefeller had long

been a part of charity. Starting with his very first job

Rockefeller had begun tithing annually to his local Baptist

church, as Abels shows Rockefeller had a gift-giving curve that

rose in conjunction with his annual earning until by 1892

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Rockefeller was giving over $1.5 million in gifts and tithes. As

Rockefeller started to retire from the business world he turned

his attentions more and more to the philanthropic world, he

sought to run his charitable giving in the same way as his

business (Segall). Rockefeller would contribute matching grants

and sought cooperation among charities much like he did in

business.

Rockefeller’s first step in creating his foundation was to

hire Frederick T. Gates as his chief almoner. Rockefeller had

long been giving money to many charities without investigating

them; he had a number of bad investments that were doing little

to help the public. Gates was instrumental in researching those

charities that were receiving money, requiring charities to prove

their worth, and encouraging Rockefeller to ‘make final

disposition of this great fortune in the form of permanent

corporate philanthropies for the good of mankind’ (Collier &

Horowitz). This early use of outcomes and grant proposals became

a standard for the philanthropic world and Gates was instrumental

in making sure the Rockefeller money was used in the most

productive ways. There were three main principles to his giving;

the effort should be to build for strength not weakness, the best

philanthropy is in search of finalities ie a search for the cause

not an attempt to cure symptoms, and finally the money should be

given as much as possible to organizations who had already been

established and proven their worth (Collier & Horowitz).

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 In 1910 the creation of the Rockefeller Foundation was first

decided and John D. Rockefeller, John Rockefeller Jr, Frederick

Gates, and Rockefellers son-in-law Harold McCormick were signed

as trustees of the Rockefeller fortune. And while Rockefeller did

have an impressive track record for philanthropy his motives were

not entirely selfless. There are a variety of reasons someone may

choose to start a foundation with their money. The four main

motivations are value-based, peer pressure, selfish goals, and

instrumental motivations (Anheier). Rockefeller shows a good mix

of each, he recognized the public relations benefits of his

foundation, which was particularly needed after the South

Improvement plan. Rockefeller knew that good publicity was

essential to his business and that by giving ‘selflessly’ his

money would go a long way in changing the perceptions held by the

public. That being said Rockefeller also had a genuine desire to

fix social ills and had a strong religious background of giving,

both of which are value-based motives. Rockefeller’s track record

of giving show that this was not something he thought up in the

boardroom, but rather something Rockefeller had grown up with.

There was even the peer-pressure motivation; the long-standing

rivalry between Rockefeller and Andrew Carnegie was largely noted

in the press, annual tallies of who made and gave away more money

were front-page news. When Carnegie started his foundation in

1911 the pressure was added for Rockefeller to match him.

While an attempt by Junior’s father-in-law Senator Nelson

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Aldrich to obtain a federal charter for the foundation failed, by

1913 the state of New York officially recognized the Rockefeller

Foundation’s Charter and Rockefeller made good on his $100

million dollar promise (Collier & Horowitz). Within just a few

years of the foundation’s creation it became an international

force carrying out its mission around the world. Major donations

were made to the American Red Cross, the International Health

Commission, The China Medical Board, and a number of other

medical studies were funded (Rockefeller.org).

Carnegie

Famous for his “Gospel of Wealth” Andrew Carnegie was the

epitome of the American Dream. Carnegie was a Scottish immigrant

who raised himself up by his bootstraps to become one of the

richest men in the world. His ruthless business practices gained

Carnegie many admirers but few friends and Lamont-Brown paints an

interesting picture of his wealth. Recognizing the irony in the

fact that a poor boy from Dunfermline, who hated the aristocracy,

being dubbed a robber baron. With a personal fortune of fifteen

million dollars at the time, Carnegie took those charges

seriously and started the work of using philanthropy to improve

his public image.

One of Carnegie’s biggest pet projects was his work with

creating libraries. Indeed his effort to establish libraries,

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while being criticized by both sides, was one of Carnegie’s

proudest accomplishments (Wall). There is some debate as to all

of Carnegies motives for his philanthropy. Whereas Lamont-Brown

recognizes Carnegies desire for improved public opinion Krass

writes that Carnegie was bothered by the idea his philanthropy

was for ‘expiation for his sins as an industrialist.’ Krass even

contradicts himself later in his book when he says that when

Carnegie came home from overseas he had ‘bought himself

absolution- or at least forgetfulness, which amounted to the

same.’

While Carnegie did not have the philanthropic track record

of Rockefeller, he was still not as late to the game as Gould or

Fisk. Carnegie had established a number or charities and

foundations for a variety of issues, including teachers,

libraries, health, and peace (Carnegie.org). He gave to

organizations or cities that had shown they were able to better

themselves. In his own works Carnegie believed that men who had

large amounts of wealth had gained that wealth out of their own

intelligence. That intelligence also meant it was the

responsibility of the wealthy to give charitably. In Carnegie’s

opinion someone who passed away, while still having a large

amount of money in their possession did not deserve the wealth in

the first place (Carnegie).

But Carnegie quickly found out that no matter how much he

gave away every year the interest on his fortune was gaining

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quicker than he could give it away (Wall). In ten years Carnegie

gave away over $180 million dollars, and was still left with

about the same amount in his accounts. This was something of an

embarrassment for Carnegie who in his Gospel of Wealth wrote that

it was the responsibility of the self-made man to make sure his

fortune was given away to those most deserving before he died.

But Carnegie would have to abandon this thinking when he created

the Carnegie Corporation of New York in 1911 realizing that with

a fortune as great as his no one man could disperse it all. So in

a series of donations Carnegie gave the majority of his fortune,

around $125 million dollars, to the Carnegie Corporation.

Andrew Carnegie’s motivations side more with the peer-

pressure and selfish goals than Rockefeller. Carnegie had a

genuine belief that it was the responsibility of the wealthy to

reticulate their wealth back into society (Carnegie). But he also

recognized the fact that his public image was in poor shape and

the benefits of using his wealth for the public good were not

lost on Carnegie. Collier and Horowitz even mention Carnegie’s

penchant for self-promotion quoting Poultney Bigelow who wrote

that ‘never before in the history of plutocratic America had any

on man purchased by mere money so much social advertising and

flattery, he would have given millions to Greece had she labeled

the Parthenon ‘Carnegopolis’.

Ford

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 Henry Ford was not a man who needed to improve his public

image. Unlike Carnegie or Rockefeller, Ford was extremely popular

with the American public. Seen as the paragon of American virtue

Ford had the image reminiscent of the western cowboys,

hardworking and virtuous as well as ingenious. From early on Ford

recognized the power of a positive public image. While he

supported public benefits, Ford enjoyed not only the promotion of

his company but also the fame he received. According to Watts,

Ford made sure that he seized every opportunity to remind the

public of his regard for ‘the common people’ in all his public

appearances and philanthropic ventures. In everything he did Ford

was a constant self-promoter. So while there was an element of

self-promotion in all of Ford’s endeavors, the creation of the

Ford Foundation was not meant to repair public image, as was the

case with Carnegie and Rockefeller. Instead it was created merely

out of tax incentives. After the creation of the ‘wealth tax’ by

the federal government, which was a tax levied against fortunes

over fifty million dollars, Henry Ford’s son Edsel created the

Ford Foundation as a means of keeping the Ford Motor Company from

being held by non-family members. The entire Ford family planned

to transfer their combined 95% stake in the company, through

probate, into the Ford Foundation upon the death of Henry Ford.

This was in combination with Edsel’s endowment when he

predeceased Henry. Thus effectively bypassing the wealth tax

(Brinkley).

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 While the shares were entirely non-voting and could not be

sold, they were valued at $493 million dollars, and generated an

average of over twenty-five million in dividends each year. This

strong financial backing caused the Ford Foundation to be by far

the richest foundation in the United States. Because the

foundation was created for almost entirely instrumental

motivations (Anheier) the foundation had little specific purpose,

other than to dispense money ‘for the public welfare’. The

foundation remained mostly dormant giving away roughly one

million dollars a year, mostly to the Henry Ford Hospital and the

Edison Institute (later known as the Ford Museum), until 1950

when Clara Ford died (Brinkley).

After Clara died Edsel’s son, and Henry’s grandson, Henry

Ford II took over the foundation. Similar to what he had done

with the Ford Motor Company after his grandfather retired Henry

II created a commission to study the foundation. In this early

form of program evaluation Henry II placed a great deal of

importance on professionalizing philanthropy. He took the panel’s

recommendations seriously and turned the foundation into an

organization devoted towards five areas; peace, democracy,

economic well-being, education, and the knowledge of human

behavior. Board control was relinquished by the family and

included more outside members. Henry II turned the Ford

Foundation into an organization that was free from the company

and the families selfish motives. The Ford Foundation moved its

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headquarters from Detroit to New York and started a new chapter

of worldwide philanthropy (fordfound.org).

These three men and their foundations have been staples of

the American philanthropic world since their creation. They

continue to be some of the world’s largest and most wide reaching

foundations and have incredibly large amounts of money at their

disposal. While all three were created for different reasons they

have all come to be regarded with increasing goodwill.

Rockefeller and Carnegie were able to get the good public image

they so richly desired. So many years after the scandals that

surrounded the creation of their wealth has been forgotten their

foundations allow their names to live on in positive terms. Ford

was able to get his desired attention both during his lifetime

and even now, years after his death. Their foundations live on to

this day, and each has created a niche where they continue to

give millions in grants each year.

Currently the Rockefeller Foundation has assets valued at

just over three billion dollars. In the 2008 fiscal year the

foundation came in just under 5% required payout, giving nearly

$144 million in grants, which was roughly 4.8% of their assets.

When you add operating expenses, fifty-one million, than they

have met their required payout at 6.5%. The Rockefeller

Foundation pays grants in five different funding areas; basic

survival safeguards, climate & environment, urbanization, social

& economic security, and global health. These areas are updated

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versions of the same areas John D. Rockefeller found important in

the early 20th Century. The Rockefeller Foundation works in Asia,

Africa, North America, and mostly in developing countries.

The Ford Foundation has over eleven billion in assets, still

being the largest foundation in terms of value. In the fiscal

year 2008 the Ford Foundation gave out almost $544 million in

grants, which equals 4.9% payout. The foundation claimed another

$167 million in operating expenses when you add in the operating

expenses the total is 6.4%. For the last five years has been

their distribution rate has been between 5.5% and 6.5%, which is

higher than their counterparts. When you consider the

significantly higher asset value of the Ford Foundation this

works out to a considerably higher payout even if the foundation

sticks to the 5% payout.

The Ford Foundation currently funds projects that are

related to nine different core areas. These areas are; democratic

and accountable government, human rights, social justice

philanthropy, economic fairness, metropolitan opportunity,

sustainable development, education opportunity and scholarship,

freedom of expression, and sexuality and reproductive health and

rights. The foundation works in all fifty states and ten

different regions around the world. These regions are; Brazil,

China, Andean Region and Southern Cone, Eastern Africa,

India/Nepal/Sri Lanka, Indonesia, Mexico and Central America,

Middle East and North Africa, Southern Africa, and West Africa.

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The headquarters for the foundation has remained in New York City

since Henry Ford II’s committee recommended moving out of Detroit

in 1953.

The Carnegie Corporation has assets at just over $2.6

billion dollars; the distribution amount in 2008 was roughly $195

million dollars. Operating expenses totaled thirty-nine million

dollars. The payout percentage for the grants distribution amount

was 7.5%, which is a highly impressive number. Considering the

Carnegie Corporation has roughly half a billion less in assets

compared to the Rockefeller Foundation yet they paid out more

than fifty million dollars more in grants. When the operating

expenses are added in, which is common for foundations to do, the

payout percent equals an astounding 9%. Not only does the

Carnegie Corporation pay a higher amount in grants, with fewer

assets, they also have the lowest operating costs. The two main

focuses of the Carnegie Corporation are education and

international peace. These are both done on an international

level. The programs currently being funded by the Carnegie

Corporation are; International Peace and Security, Islam

Initiative, Higher Education and Libraries in Africa, Higher

Education in Eurasia, Urban and Higher Education, Democracy and

Civic Integration, Carnegie Scholars, Future of Journalism

Education, and Dissemination.

Based on the current giving of each foundation the Ford

Foundation has done a good job of sticking to the mission and

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values set forward not by the founder, but by Henry Ford II. The

foundation has continued to be absolute in its mission to improve

the lives of as many people as possible, and is still one of the

largest foundations both in terms of assets, and grants given.

The Carnegie and Rockefeller Foundations have also continued

their legacy, not only of making a difference, but staying neck

and neck with each other. And while the Rockefeller foundation is

ahead in terms of asset value, the Carnegie Corporation has shown

more giving capabilities by not sticking to the 5% payout as a

minimum.

Minority Groups and Foundations

While foundations have had a long-standing history in

European-American communities more recent inroads into minority

communities is a new phenomenon. There have been a variety of

responses towards foundations within the Asian-American, African-

American, Native-American, and Latin-American communities. New

wealth in each of these groups has given each the ability to

create foundations unique to their history and community needs.

There are a variety of issues that may impede the growth of

foundations in these communities. The biggest of these would be

that each these communities have a distinct connection to family

and community, each group feels that problems are best handled on

the lowest level. Giving is seen as a common cultural practice,

but not in the same way as in European-American communities.

Similarly wealth has different connotations within these

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communities. Wealth is more closely tied to knowledge, spiritual

matters, as well as behavior rather than net worth (Berry). These

types of wealth do not easily translate into foundations, and

similar ideas are held within the other minority communities.

Regardless foundations are beginning to make headway in each

of these communities thanks to increased education and discussion

surrounding philanthropy. Within the African American community

in particular the vestiges of racism has created mistrust of

planned gifts in particular and other issues related to banking,

courts, and lawyers (Winters). Within both the Latin American and

Asian American communities’ family foundations were the most

common types of foundations. Interestingly, particularly within

the Asian American community, there was a lack of interest and

knowledge of community foundations. This lack of interest is a

direct result of the lack of relationships. Because the people

interviewed had not direct relationships with people on the board

or staff of these large community foundations donors felt no

desire to give to these foundations (Chao).

Motivations

People give to foundations for a variety of reasons; with

the minority populations many donors prefer to give to immediate

needs, which are why foundations are less popular. Outside of

these communities’ people give or start foundations because of

four motivations in particular (Anheier). People may give because

of various value-based motivations such as their religious

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heritage, or genuine desire to create social change. They may

give because of the instrumental motivations that are related to

tax incentives, creating a memorial, or a sense of family

tradition. Others may respond to the peer pressure motivation,

hoping to remain fashionable or act due to social pressure. And

lastly donors may be motivated by selfish goals, hoping to gain a

sense of personal satisfaction or maintain a sense of control

over their assets. Each of these motivations may continue to

affect the foundation even after its founding. Hypothetically a

foundation formed by a corporation in response to peer pressure

or other selfish motives may not have the same focus or drive as

a foundation created for more value-based motives.

Conclusion

Whatever the motivation for their creation foundations have

been a part of American philanthropy since the beginning. More

recently foundations have moved to the forefront and are able to

become leaders within the community to create lasting social

change. Foundations are able to work outside of political or

other restraints to create innovate ideas in the world of

nonprofits. The incredible wealth created in the 20th Century

played a large part in the history of foundations. The men who

started foundations with their wealth did so for a variety of

reasons, but one thing has remained constant. The foundations

have continued to do the work set forward by the founders, and

whatever their motivations their names live on in good terms.

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