"Swollen charities: Should they give more?" (Social Issues, May 29) captures many aspects of the debate about the growth of foundations in the buoyant U.S. economy of recent years and the federal requirement that they give away at least 5% of their assets annually. But it gives a misleading impression of the Ford Foundation's position and practice on these matters.
Ford has exceeded the 5% payout requirement for many years and expects to do so again this year and next. As our spending indicates, the 5% is a floor, not a ceiling.
You correctly note that "the bottom line is really a philosophical one." To us, the most fundamental philosophical issue concerns individual freedom--the freedom of a donor to create a foundation to serve the public in perpetuity or for a shorter time. The 5% floor allows for perpetuity. Studies have shown that requiring a higher payout threatens a foundation's long-term survival.
Not all will choose perpetuity. But some will, because they want their wealth and good fortune to help others generation after generation, and they believe that over time their foundation will accumulate knowledge and expertise that makes it more effective.
Susan V. Berresford
Your article presents a complex issue facing foundation trustees and staff about whether to increase grant-making above the current 5% payout level.
We believe that responsible management of a foundation's portfolio requires a perspective that covers decades, not just a 5- or 10-year period. A new study by Cambridge & Associates Inc. for the Council of Michigan Foundations, using real data from a group of 33 Michigan foundations with diversified portfolios, revealed their real annual return from 1973 to 1998 was 5.27%. At the Charles Stewart Mott Foundation, it was only in 1997 that we recaptured (in real terms) the grant-making power our portfolio had in 1963, the year that Mr. Mott donated the bulk of his estate to our Foundation.
One fact that frequently fails to enter into the public discussion is that, even at the current 5% payout level, the number of philanthropic dollars available for charity has increased at record levels in recent times. According to the Foundation Center, independent foundation giving grew 41.6% during the past two years, the strongest two-year gain on record. Grantees of the Mott Foundation have benefited directly from the stock market's recent performance, as well as our sound investment practices. In 1999 alone, the Foundation's grant actions increased 29.1%, to about $114 million, over the previous year as a direct result of our asset growth.
There is nothing to preclude a foundation from granting more than 5%, and foundation boards are making that decision on an individual basis. But we should not forget that many philanthropists establish foundations with the desire to make their resources available for the long term and with a degree of flexibility for the unknown. Fifteen years ago, no one could have predicted the AIDS epidemic or, in the case of the Mott Foundation, the opportunity to support emerging democracies in Central and Eastern Europe after the fall of the Berlin Wall.
The philanthropic table of the 21st Century has room for many styles and values, whether it is the short-term spend-down of all resources to solve a specific problem, or increasing payout rates on a short-term basis, or utilizing payout and investment strategies to sustain a portfolio's purchasing power over the long run. Pluralism and diversity are strengths of the field, and it would be unfortunate to see this disappear.
William S. White
President and CEO
Charles Stewart Mott Foundation