The Commission on Foundations and Private Philanthropy

Written by Rob Kaufold

Definition

In response to growing criticism of private foundations and impending legislation that would inhibit the actions of these entities, John D. Rockefeller III initiated The Commission on Foundations and Private Philanthropy (the “Commission” or the “Peterson Commission”) in 1969.  Peter G. Peterson was chosen to lead this Commission that then noted three goals of its work (Peterson Commission 1970, 123):

1. To stimulate an increase in funds available and actively devoted to philanthropy.
2. To ensure that foundation funds are dedicated to legitimate charitable purposes.
3. To increase, diversify and improve philanthropic efforts in the private sector.

The Commission’s discussions and research resulted in the Foundations, Private Giving, and Public Policy Report (the Report), published on June 1, 1970.  Their recommendations were as follows:

For Foundations

It is important to note that the Commission made a distinction between foundations and charitable organizations.  For the purposes of this Report, foundations are private, grant making organizations.  The Ford Foundation, as an example, would be included in the Commission’s definition of a foundation.  Charitable organizations are those that seek operational resources from private or public sources in order to execute their mission.  An example would be a local Boys and Girls Club.  Charitable organizations are not the audience for this Report, but would be a beneficiary of the recommendations offered.  

Throughout the Report, the Commission noted that foundations are better positioned than the government to identify, improve, and refine charitable opportunities.  To that end, the Commission recommended that a foundation mission be drafted to encourage experimentation, to promote work in sensitive and controversial areas, and to launch specialized programs.  It demanded that foundations improve their evaluation tools while providing greater transparency and wider communication about their work, including successes and failures.  It encouraged diversity within foundation boards to promote varied perspectives and insights when seeking solutions.  Given the flexibility of private foundations, the Commission encouraged foundations act quickly when engaged in their work.

For Government

For the Government, the Commission recommended the construction of tax and legislative policies that increased opportunities and incentives for charitable activity and giving.  To promote better accountability, the Report acknowledged the need for improved regulations to ensure that foundations were meeting their obligation to serve the public good.  It encouraged the adoption of an annual minimum payout for private foundations and required annual reporting that documented foundation activity including payouts and administrative expenses.

To support these efforts, the Commission recommended the creation of an Advisory Board on Philanthropic Policy to be established within Government.  The purpose of the group was to provide information, oversight, and advice to both foundations and governmental organizations.  This organization was never created.

Historical Roots

In 1965, in response to a growing concern of abusive practices within private foundations and an expanding view of elitism for those who leveraged private philanthropy for self-gain, the Department of the Treasury published The Treasury Report on Private Foundations of 1965.  This report recommended improvements in transparency and accountability for private foundations through restrictions on certain financial transactions, enhanced regulatory reporting, and more restrictive tax laws.

Concerned about the growing unease with private philanthropy, in February 1969 John D. Rockefeller III, with others, “initiated a commission to be formed to study all relevant matters bearing on foundations and private philanthropy and to issue a report containing long-range policy recommendations with respect to them” (Peterson 1970, 3).  The Commission initiated their work by exploring five distinct matters that related to private philanthropy:

1. Private philanthropy versus public support.
2. The growing needs of charitable organizations. 
3. Tax incentives that promote charitable giving.
4. The real and perceived abuses by private foundations and those who provide funding.
5. The role of private foundations as intermediaries.

The Commission disbanded in June 1970 upon completion of its final report.  Despite being published six months after the enactment of the Tax Reform Act of 1969 (the “Act”), it is clear that the work of the Commission immediately impacted tax policy by broadening the view of the work of private foundations.  Specifically, amongst other things, the Act defined the term “private foundation” for the first time.  The Act codified many of the recommendations outlined by the Commission, including instituting an annual excise tax on foundation income, setting a minimum distribution for private foundations (and penalties for not meeting the minimum payout), and increased the existing charitable deduction limits for individual donors (Arnsberger, 107-108).  Despite continued debate and modifications, the theories used to create the Tax Reform Act of 1969, supported by recommendation of the Commission, continue to govern private foundation activity today. 

Importance

The ultimate impact of the Commission’s work is a widely debated topic, given the timing of the release of its final Report.  However, it is believed that the work of the Commission helped “prevent the most draconian aspects of legislation affecting foundations and philanthropic giving” (Brilliant, 95).  Challenges from private foundations and government meant that not all of the Commission’s recommendations were realized, including its most important recommendation that an Advisory Board on Philanthropy be created.  However, the accumulation and summary of research compiled within the Commission’s Report are an important marker in the history and work of private foundations that continues to be relevant today. 

Specifically, the Commission’s final Report notes that “in the field of public affairs, education and not political pressure is the one and only proper aim for foundation activities” (Peterson Commission 1970, xvii).  Concern over private philanthropy’s influence in politics continues to be relevant today, given the explosion of independent philanthropy in the United States.  In making its argument for a shared responsibility between private philanthropy and government for charitable work, the Peterson Commission acknowledged that reported charitable giving in 1969 was $17.6 billion (Peterson Commission 1970, 1).  In 2016, that number has grown to $390.05 billion! (Giving USA).   Although a substantial figure, it still only represents approximately 10% of the federal budget.

As such, it continues to be true that the dual system of giving between private philanthropy and public funding is critical to serving the public good.  The Commission notes that balance between these parties is critical to education, explicitly noting that private philanthropy can be "where 'pilot projects' can be put to the test of practice" and where “successful social innovations can then become the common property of the nation” (Peterson 1970, 16).  The Commission also noted that failures realized by private philanthropy are as significant, and in some cases more significant, to the learning process.

The concept of experiential learning described by the Commission is critical for modern thinking around social innovation and venture philanthropy.  When seeking to solve social problems, it is important that risk be balanced between private philanthropy, public charities, and government.  This balance will lead to a system of learning and sustainable support that can help improve the general welfare of those served.

Ties to Philanthropic Sector

One of the challenges noted by the Peterson Commission is that it had not intended to spend time collecting facts, but instead expected to consider and formulate judgments on policy questions surrounding the work of private foundations.  The lack of readily available information complicated the mission of the Commission and, ultimately, was a significant factor in their recommendation to form an Advisory Board on Philanthropic Policy.  This information gathering challenge continues today.  In 2014, there were 79,729 independent foundations in the United States holding assets approximating $712.5 billion.  Total giving in 2014 was approximately $41.3 billion or 5.7% of assets held (The Foundation Center). It should be noted that since 1981, the payout percentage described in the recommendation and set by the Internal Revenue Service has been 5% (IRS), rather than the 6% to 8% the Commission recommended. 

Although the advisory board was never fully formed, the concepts led to the development and purpose of organizations such as Giving USA, The Foundation Center, GuideStar, and The Council on Foundations, as well as influenced tax reporting requirements of all charitable organizations.  These organizations, as well as others, provide clear, helpful and transparent information for policymakers as well as social service organizations, and avoid the uncertainty and suspicions that led to the founding of the Commission in 1969.

Key Related Ideas

• Foundation Transparency - Instead of an Advisory Board on Philanthropy, fiscal oversight of charities was and continues to be the responsibility of the Internal Revenue Service (IRS).  In an effort to promote the transparency of all charitable organizations, all charities, including political organizations, need to file an appropriate Form 990 annually with the IRS.  This form includes detailed information about the activities of the foundation, including listing its giving and details of its administrative expenses and governance.  Organizations such as Charity Navigator and GuideStar have leveraged these resources and provide users the ability to search these documents and compare activities between organizations.
• Tax-Exemption for charities, private foundations, and individual giving continues to be a key topic in tax reform debates.  The dual system of giving between private and public sources, outlined by the Commission, will continue to require the use of tax-exemptions by foundations and individuals as a means to fund the work of charitable organizations.  Tax exemption, therefore, will always remain central in ongoing fiscal policy debates.
• Public Private Partnerships has exploded globally in communities seeking to leverage resources of government, banking, and philanthropy to solve significant challenges.  The concepts and benefits of these public private partnerships are captured by the Peterson Commission’s Report, noting the need to support “pilot projects” that, if successful, can be adopted and scaled by larger organizations, including government (Peterson Commission, 16).

Important People Related to the Project

• John D. Rockefeller III: John Davison Rockefeller III (March 21, 1906 – July 10, 1978) initiated the Commission, as a philanthropist and third-generation member of the Rockefeller family.  He became a Trustee of the Rockefeller Foundation in 1931 and served on 29 different philanthropic boards and committees (Rockefeller).  Despite the Peterson Commission not being able to establish an Advisory Board on Philanthropy within government, Mr. Rockefeller was instrumental in furthering the work of private organizations that met this mandate such as the Council on Foundations and the Foundation Center.
• Peter G. Peterson: Peter G. Peterson was born on June 5, 1926 and was chairman of the commission.   His public service began in 1971, after his work on the Commission, when President Richard Nixon named him Assistant to the President for International Economic Affairs. One year later, he was named U.S. Secretary of Commerce. After a successful career in politics and finance, Mr. Peterson established his own private foundation, the Peter G. Peterson Foundation in 2008 (Peter G. Peterson Foundation).
• Alan Pifer: Alan Pifer (1921 – 2005) was president of the Carnegie Corporation. In 1968, , after a series of conversations, he advised Mr. Rockefeller that “an independent commission be formed to study all relevant matters bearing on foundations” (Peterson Commission, 3).  Throughout Mr. Pifer's career, his focus was on social justice and strengthening the rights of historically disadvantaged groups, including women (Pifer).  He served as President of the Carnegie Corporation from 1967 until his retirement in 1982.

Related Nonprofit Organizations

• The Foundation Center - To further the transparency of foundation activity, the Foundation Center seeks “to strengthen the social sector by advancing knowledge about philanthropy in the U.S. and around the world”.  It serves the foundation community by providing information and a network for philanthropists globally to engage and share learnings.
• The Council on Foundations - Established in 1949, the Council on Foundations seeks to assume the role of  an advisory committee on philanthropy.  It continues to provide strategic resources, support and research for grant making organizations globally.
• GuideStar - Established in 1994, GuideStar accumulates detailed information from charitable organizations and provides access to the general public to learn, research, and compare charitable organizations.  It includes access to organizations' Form 990, as well as other pertinent organizational information for charitable organizations located in the United States.
• Charity Navigator - Founded in 2001, Charity Navigator is an evaluator of charitable organizations.  Their work focuses on the evaluation of financial health, accountability and transparency of specific charities.  It is intended for use by grant makers and individuals to help make informed decisions about planned charitable giving.

Reflection Question - Should private foundations be encouraged to take greater risks to solve social challenges?  How should we view, evaluate, or share lessons learned from projects that “fail”?

Bibliography

• Arnsberger, Paul and Others.  A History of the Tax-Exempt Sector: An SOI Perspective. https://www.irs.gov/pub/irs-soi/tehistory.pdf
• Brilliant, Eleanor L.  Private Charity and Public Inquiry, A History of the Filer and Peterson Commissions.
• Giving USA.  Giving USA 2017 Infographic. https://givingusa.org/see-the-numbers-giving-usa-2017-infographic/
• Internal Revenue Service.  Exempt Organizations Tax Manual. https://www.irs.gov/irm/part7/irm_07-027-016
• Peter G. Peterson Foundation. https://www.pgpf.org/
• Peterson Commission.  Foundations, Private Giving, and Public Policy – Report and Recommendations of the Commission on Foundations and Private Philanthropy.  The University of Chicago Press, 1970.
• Pifer, Alan. https://www.carnegie.org/news/articles/former-carnegie-corporation-president-alan-pifer-dies-at-84/
• Rockefeller III, John D. https://www.britannica.com/biography/John-D-Rockefeller-III
• The Commission on Foundations and Private Philanthropy Records, 1949-1970, Ruth Lilly Special Collections and Archives, University Library, Indiana University Purdue University Indianapolis.
• The Foundation Center.  Foundation Stats. http://data.foundationcenter.org/#/foundations/independent/nationwide/total/list/2014

This paper was developed by students taking a Philanthropic Studies course taught at the Lilly Family School of Philanthropy at Indiana University in 2017. It is offered by Learning To Give and the Center on Philanthropy at Indiana University.