Trust Based Philanthropy Lands in Court: the Winthrop Rockefeller Case

Sparks are flying in a court case in Arkansas over a leadership battle at a foundation created by a descendant of oil baron John D. Rockefeller. Behind the leadership dustup is an argument about trust-based philanthropy and whether the increasingly popular form of grant making  undermines a board’s responsibility to remain faithful to the original donor’s intent.

Lisenne Rockefeller, the daughter-in-law of founder Winthrop Rockefeller, and three other trustees are suing a group of six newly installed board members and Sherece West-Scantlebury, the philanthropy’s immediate past president.

Rockefeller and her allies on the board argue in court filings that the other trustees wrongly installed a new president to replace West-Scantlebury and are moving the foundation away from the original intent of Winthrop Rockefeller, a former governor of Arkansas. They filed their claim in November in Arkansas circuit court. 

This succession scuffle diverges from most leadership fights in that Lisenne Rockefeller’s group is not only challenging the legitimacy of the board’s decisions but of trust-based philanthropy itself. 

This approach to grant making, which puts more decision-making power in the hands of grantees and community members and which emphasizes long-term general operating support, has been gaining acceptance in recent years. Grant makers who take this approach often  jettison lengthy applications, and in some cases, phone check-ins replace grant reports. A core value of the approach is a commitment to racial equity.

At the Winthrop Rockefeller foundation, this trust-based approach has resulted in the foundation narrowing its focus to asset-limited, income constrained, and employed, or ALICE, families. They earn more than those at the poverty level, but their finances are fragile. The grant maker has given general operating support grants to nonprofits serving people in that group. Some of the organizations that have received funding are led by people who served on the search committee that picked Anderson to be president.

A request by those who brought the suit to block the installation of the new board members and their pick for president, Cory Anderson, has been denied twice, but the case has not been tried on its merits.

Lawyers for each of the board groups declined to comment, as did a representative for the foundation.

It is clear from the filings in the suit that the two groups have a distinctly different understanding of the foundation’s mission, which has resulted in contrasting ideas about the groups it should be funding and how.

In their filings with the court, the board members who brought the suit argue that the foundation’s adherence to trust-based philanthropy has resulted in the board straying from Winthrop Rockefeller’s founding vision of helping all Arkansans. They argue that he intended for the foundation to advance “a thriving and prosperous Arkansas that benefits all Arkansans by pursuing economic, educational, social, ethnic, and racial equity for all Arkansans.” They also argue that having grantees pick the president is a clear conflict of interest.

The trust-based approach to grant making has become divisive. Some say that it enables grant makers to better meet the needs of those they are meant to serve and breaks down walls between wealthy, powerful institutions and the groups they fund. Others see it as an irresponsible surrender of control. Either way, Naomi Riley, a senior fellow at the American Enterprise Institute, a conservative think tank who is critical of the practice, says there will only be more legal challenges on the horizon. 

Destabilizing Changes

The motivation behind trust-based grant making is laudable, said Riley, but there is a big difference between seeking the expertise of people working in the field and ceding all decision-making power to them.

“The recent move toward trust-based philanthropy has actually really given short shrift to all of the good work that a lot of boards have done in this area over the years,” she said. “Just because they’re not explicitly giving up their responsibility doesn’t mean that they haven’t asked for that level of input.”

A danger in the approach is that if board members give grantees too much leeway on how to spend grants, or even to help pick the foundation’s leaders, they may be shirking their fiduciary duties, she said. 

Too often when this approach is adopted, she said, “the mission of the foundation is not being carried out by the board members who have really outsourced their responsibility to the recipients of their grants.”

But boards have a lot of flexibility in how they work. As long as they don’t use the foundation’s assets to enrich related parties, such as board members or employees, and they direct their grants to qualifying charities, a foundation has a lot of leeway in how it determines its own process for making grants, said Tom Hyatt, general counsel of the Association of Governing Boards of Universities and Colleges.

More foundations have instituted trust-based approaches because they are convinced that grantees are in a better position to choose whom to fund than a program officer in a foundation, said Marcus Hunter, professor of social sciences at University of California at Los Angeles and author of Radical Reparations: Healing the Soul of a Nation. 

“Trust-based philanthropy redistributes not just money but also decision-making power,” Hunter said. “And that shift can feel destabilizing to institutions and people in them accustomed to gatekeeping.”

Like Riley, Hunter and the others contacted for this article said they were commenting on trust-based philanthropy generally and not on the merits of the pending lawsuit.

A Courtroom Struggle for Power

These competing perspectives are playing out in the Winthrop Rockefeller case. 

Lawyers for Lisenne Rockefeller and several of the trustees argue that ceding such control over grant making is problematic. 

“Making grants requires that the directors ensure that the grantee and the purpose of the grant further the foundation’s tax-exempt purpose,” the plaintiff’s lawyers wrote in their complaint. “This is where defendants’ version of ‘Trust-Based Philanthropy’ departs from their fiduciary obligations to the foundation.”

By giving general operating support without clear agreements on the use of funds, they argue, it is impossible to account for how the money is benefitting Arkansas residents.

“The foundation is not a social welfare organization, like the Salvation Army or Goodwill Industries. It cannot simply give money to needy Arkansans,” they argue.

Those arguments are “simply gripes” that Lisenne Rockefeller and her allies did not get their way in the boardroom, the other trustees say in their response to the complaint. The trust-based approach is used by many foundations, they argue.

“The purpose of Trust-Based Philanthropy is to eliminate red tape and get the work done for the people,” they wrote, adding that each grantee is held accountable for how they use money they receive.

The defendants argue that those who brought the suit are uncomfortable with the perception that the foundation under Anderson will be more vigilant in its fight for racial justice. “Plaintiffs have engaged in a disruptive power struggle aimed primarily at disrespecting the Foundation’s mission to engage in racial equity,” they wrote.

The focus on ALICE families does not specify race, and the plaintiffs do not suggest the approach is race-based in the lawsuit. People of color are overrepresented in the category, however.

A Time Capsule or a Moral Compass

When a foundation board adopts a trust-based approach, it doesn’t mean that they just give money away without a second thought, said Glenn Harris, president of Race Forward, a racial justice advocacy group.

Eliminating many reporting requirements and giving general operating grants require foundation boards to do their homework on the grantees they support beforehand and to remain supportive of them throughout the life cycle of the grant, he said. 

By sharing decision-making responsibilities with grantees, foundations can learn from others’ expertise and experience, he said. 

“Trust doesn’t have to be rooted in naivete,” Harris said.

A problem with the approach is that it could lead to grantees calling all of the shots, according to Joanne Florino, a fellow at the Philanthropy Roundtable. When trust-based approaches started gaining traction a few years ago, “it came with a certain hostility toward donors,” Florino said. 

“A lot of donors began to feel like it was ‘give us the money and then go away until we need you again,’” she said. “Nonprofits were essentially saying, even if you follow all those examples of good grant making, it still isn’t enough unless you apply a racial equity lens to all your grant making.”

Florino and others fear the trend to give more power to grantees will erode the responsibilities of foundation boards to remain true to the intent of their original donors. Others, including UCLA’s Hunter, say a board’s main fiduciary duty is to direct money to its mission.

Racial equity may make some people uneasy, Hunter said, but a foundation’s job is not to “protect people’s discomfort.”  

While he didn’t know the specifics of the lawsuit, Hunter said it isn’t necessarily the case that Winthrop Rockefeller Foundation’s focus on ALICE families and racial equity are an abandonment of Winthrop Rockefeller’s original vision.

“Donor intent should function as a moral compass and not a time capsule,” he said. If a foundation’s mission includes improving society, then racial equity work is not a deviation. It’s actually a contemporary expression of that mission.”