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Lilly Endowment, Inc.

By Kelly A. Ivcevich

Graduate Student, Center on Philanthropy at Indiana University


Definition

The Lilly Endowment is an Indianapolis based, private family foundation. As an independent foundation, the Lilly Endowment makes grants based on the mission, charter and/or trust under which the foundation was established. This mission for the Endowment is to support the causes of religion, education and community development. The reason for support in these three areas is the founder's wish, "the cultivation of an educated and virtuous American citizenry" (Wisely, p. 2).


Importance

Non-Corporate foundations, such as the Lilly Endowment, accounted for $11.83 billion (7.8%) of all contributions in 1996 (Giving. p. 17). Although they account for a small percentage of total giving, foundations do have a great influence on private and public affairs. Because foundations choose what they support, they can concentrate their efforts on one or more areas thus becoming influential in the area they support. For example, "though barred from lobbying, (foundations) can stimulate governmental action through the research, education, experimentation, conferencing and publications they finance" (Ylvisaker, p. 373). The role of foundations then and particularly the Lilly Endowment, is to support the independent sector. Jim Morris, past president of the Lilly Endowment, saw foundations as resource institutions. "We can give individuals and institutions vision and spirit and the time they need to think, study, read, reflect, converse, plan, listen, stretch and share" (Morris, p. 5).


Ties to the Philanthropic Sector

"87 cents of the 1996 charitable dollar came from individuals. Non-corporate foundations gave $11.83 billion, 7.8% of all contributions" (Giving, p. 17). The Endowment supports projects of other nonprofit organizations such as schools and churches. Many times, the foundation has been instrumental in the development campaigns of these nonprofit organizations by providing a matching gift. This gift often encourages individuals to give to the nonprofit that has this type of gift from the Endowment because their gift will be "doubled."


Geography

Lilly Endowment is based in Indianapolis, Indiana. "Although the Endowment ... supports efforts of national significance and an occasional international project, (the Endowment) remains primarily committed" to Indianapolis and Indiana (Annual Report, 1992).


History

The Lilly Endowment was created in 1937 by three members of the Lilly family, J.K. Lilly Sr. and his two sons, J.K. Jr. and Eli, through gifts of stock in their pharmaceutical company, Eli Lilly and Company.

It was Eli Lilly who encouraged his brother and father to create a foundation as a way to retain control of Eli Lilly and Company, decrease income and inheritance taxes and continue and expand the family's charitable gifts. With contributions of Eli Lilly and Company stock valued at $280,000, the foundation was formed and was run by Eli Lilly.

The endowment grew in 1948 following the death of J. K. Lilly Sr. and his bequest of additional company stock that increased the Endowment's assets by $30 million. Eli Lilly saw that this increase in assets required a full-time staff. Two men were hired, an annual report was published, and policies and procedures were developed. However, it was not until the 1950s that the Endowment focused its attention on education, religion and community.

The 1969 Tax Reform Act forced the Endowment to diversify its stock holdings and to increase its grant pay-outs. According to this act, all foundations are required to pay either five percent of their assets or income, whichever is greater. Therefore, the Endowment's giving rose from about, "$9 million in the late 1960s to over $50 million by the mid-1970s" (Encyclopedia of Indianapolis, p. 915).

Before his death in 1977, Eli Lilly encouraged the Endowment to increase its support to the City of Indianapolis. "This new Indianapolis initiative meant that the Endowment moved away from its reluctance both to support capital projects and to become closely involved with public, tax supported development" (Encyclopedia, p. 916). Projects the Endowment has supported include: the expansion of the Indianapolis Convention Center, construction of the RCA Dome, restoration of the Hilbert Circle Theatre, and the building of the Eiteljorg Museum, the NCAA Headquarters and Hall of Champions Museum.

Today, the Endowment continues to support religion, education and community to, "improve the character of the American people" (Wisely, p. 2).


Economics

When the Lilly Endowment was created in 1937, it began with contributions of Eli Lilly and Company stock valued at $280,000. In 1998, Lilly Endowment became the wealthiest private foundation in the United States with approximately $3 billion more in assets than the Ford Foundation which previously ranked as the largest for more than thirty years. In 1999, the Endowment remained the largest private foundation surpassing the Ford Foundation by $5 billion in assets.

The Endowment's assets, $15.4 billion, consist primarily of Eli Lilly and Company stock. Therefore, the performance of the stock market affects the value of Lilly Endowment assets which in turn affects the amount of future year grants (due to the pay-out requirement of the 1969 Tax Reform Act). If Eli Lilly and Company stock decreases in value, as it did in the 1970s, the size and/or number of grants will also decrease. In the 1990s, Eli Lilly and Company stock value increased and grants increased from $110,882,982 in 1995 to $166,599,677 in 1996, a 50% change in one year. As a foundation, the Endowment is required by law to give away 5% of the average value of its assets per year. Lilly Endowment will have to give away more than $400 million in 2000.


Government

"The ultimate authority and responsibility within foundations rests with trustees" (Ylvisaker, p. 363). The Lilly Endowment is governed by a ten-member Board of Directors, as outlined in the Endowment's by-laws. This Board of Directors is responsible for the management and affairs of the Lilly Endowment. The trustees or its executive committee considers grants in February, March, May, June, July, September, November and December. It is their responsibility to ensure the grants they decide to support are within the areas outlined by the founders of the Endowment.

A private foundation, like the Lilly Endowment, is also subject to the rules and regulations of the 1969 Tax Reform Act. This act was designed to prevent foundations from being established to indulge in, "self-interest under the cloak of altruism" (Ylvisaker, p. 361). The 1969 Tax Reform Act requires that private foundations:

  • pay an excise tax on their investment income,

  • limit individual deductions for gifts to foundations,

  • have a minimum pay-out requirement,

  • have regulations against grants to individuals

  • pay tax on investments that jeopardize the foundation's ability to carry out its mission,

  • have provisions against self-dealing, and,

  • submit a tax return form 990 PF.


Important People Related to this Idea

Colonel Eli Lilly was founder of Eli Lilly and Company and father of J. K. Lilly. His primary interest was in, "promoting the economic and general development of the city through commercial organizations" (Encyclopedia, p. 912). Some of the community projects he supported included the pavement of streets, sewers and elevated railroad crossings.

J.K. Lilly, Sr., father of Eli Lilly and J.K. Lilly, Jr., became president of Eli Lilly and Company in 1898 and continued his father's interest in support of the community of Indianapolis. J.K. Lilly, Sr. was one of the founders of the Lilly Endowment.

Eli Lilly, son of Josiah K. Lilly, Sr., was one of the founders and first president of Lilly Endowment. His primary interests included: history, archeology, religion, education and community.

J.K. Lilly, Jr., son of Josiah K. Lilly, Sr., was one of the founders of the Lilly Endowment. His primary interests included books, 18th century paintings, gold coins, stamps, and firearms.


Bibliography

Encyclopedia of Indianapolis, p. 910-917.

Giving USA 1997, AAFRC Trust for Philanthropy, New York, NY, 1997.

"The Lilly Endowment Ranks as Nation's Top Private Foundation," Fund Raising Management, March 1998, vol. 29 no. 1 p. 6.

McLaren, George, "Lilly Endowment is Tops in Assets," Indianapolis Star, Saturday, February 20, 1999 Section C pp. 1-2.

Morris, James T., Foundation Leadership, American Association of Fund-Raising Counsel, Inc., New York, NY, 1987.

Wisely, D. Susan, A Foundation's Relationship to Its Public: Legacies and Lessons for the Lilly Endowment, Indiana University Center on Philanthropy, Indianapolis, IN, 1995.

Ylvisaker, Paul N., "Foundations and Nonprofit Organizations," The Nonprofit Handbook, Powell, Walter, W. pp. 360-397.