Richard N. Goldman, President, Richard and Rhoda Goldman Fund: The Case for a Higher Foundation Payout Rate

December 3, 2003
Richard N. Goldman, President, Richard and Rhoda Goldman Fund: The Case for a Higher Foundation Payout Rate

The 1990s was a period of steady and, at times, spectacular growth for the foundation field. The universe of private and community foundations almost doubled in size during the decade, from 32,000 to more than 56,000, while the number of large foundations —— those with assets of more than $1 million or grantmaking of more than $100,000 —— grew by over 40 percent. Foundation assets experienced a similar surge, rising from $142.4 billion at the start of the '90s to $495.6 billion by decade's end (an increase of $96.2 billion in inflation-adjusted dollars).

But while foundation assets trended upward throughout the period, the percentage of those assets devoted to grantmaking fell, from an average of roughly 7 percent at the beginning of the decade to just under 5 percent at its close. In response, a growing chorus of critics, both within and outside the field, began to argue that the congressionally mandated 5 percent payout requirement for private foundations had, over time, become a ceiling on giving instead of the floor intended by Congress when it revised the payout requirement downward in 1981. And as recession, government cutbacks, and the aftershocks of the 9/11 terror attacks began to batter the nonprofit sector in 2001-02, calls for higher foundation payout grew louder. 

In November, Philanthropy News Digest spoke with Richard N. Goldman, president and founder of the San Francisco-based Richard and Rhoda Goldman Fund, about the fund's origins and evolution, why he favors a higher payout rate for foundations, and his advice for young philanthropists.

Goldman, the founder and longtime chairman of San Francisco-based Goldman Insurance Services, established the Goldman Fund with his late wife Rhoda, a descendant of Levi Strauss, in 1951. In 1990 the couple established the Goldman Environmental Prize, the world's largest prize program honoring grassroots environmentalists. The Goldman Fund, which supports programs in the areas of children and youth, democracy and civil society, domestic Jewish affairs, education, the elderly, the environment, health, Israel, population, social and human services, and the arts, plans to spend itself out within ten years of Mr. Goldman's death.

Philanthropy News Digest: You and your late wife Rhoda established the Goldman Fund more than fifty years ago. What was behind your decision to create the fund?

Richard Goldman: As I recall it was because there was a benefit, tax-wise. A friend of ours who was an attorney said, "You ought to establish one, you don't have to use it, other than put money into it as you wish, and it's a good vehicle to have for future giving."

PND: When did you start thinking of it as something other than a tax-advantaged vehicle for a portion of your assets?

RG: At least twenty-five years ago.

PND: What was the fund's focus as you and your wife became more active philanthropically?

RG: The needs of our community.

PND: San Francisco?

RG: Right. And as we built up the assets in the fund over the years, we were able to increase our level of our support. We became more international in our philanthropy.

PND: For a particular reason?

RG: I think it was a combination of things —— we became more knowledgeable, the funds available to us continued to grow, and we just flowed into it.

PND: When did you begin to develop an interest in environmental issues?

RG: That started when Rhoda and I were children. We both came from families that spent time out of doors. We hiked in the mountains with our parents and siblings, and that gave us an opportunity to appreciate nature at its best.

PND: Out of that interest came the Goldman Environmental Prize, the largest environmental prize for grassroots environmentalists in the world. How and when did you get the idea for the prize?

RG: One day about fifteen years ago, I happened to be reading an item in the morning paper about the Nobel Prizes, and I began to wonder whether there was anything comparable for environmental activists. Rather than forget it, I mentioned it to the director of our fund and suggested we look into it. To our amazement there was nothing. So I said, "Let's go for it," and we did.

PND: Are you personally involved in selecting the awardees?

RG: Yes, I am.

PND: Can you tell us about that process?

RG: After we decided to go for it we didn't know quite how to proceed, so we talked to a number of prize organizations around the country, and they turned out to be quite helpful. They told us what we ought to consider, and what we probably didn't want to do. One of the things we decided on our own, however, was to keep it as simple as possible. So we decided to draw on the experience of existing environmental organizations and people with environmental credentials and asked them if they would submit the names of environmental activists who qualify, and in return we would compensate them for doing that. The next step was to have our staff review the qualifications and accomplishments of the nominees, and we selected a jury of experts to make the final decisions. That's the way we've done it ever since.

PND: Does the composition of the jury change from year to year?

RG: Not so far.

PND: Has the program succeeded in the ways you hoped it would?

RG: Beyond our expectations. I think we happened to strike at a time when the environment was becoming more of a concern globally, and I think the awards have made more people conscious of the environmental activism that is happening around the world. We were just lucky to pursue an idea that seems to work.

PND: You've raised the stipend that goes with the award three times, from $60,000 to $125,000. Do you plan to raise it again?

RG: Not at this time.

PND: Do you plan to operate the program indefinitely?

RG: As long as there's a need and we have the means to finance it.

PND: You've been outspoken about your desire to see the foundation payout requirement mandated by Congress raised from the current five percent to something closer to ten percent. Why?

RG: Because we strongly believe that, based on the growing demand for philanthropic support, foundations should spend down their endowments rather than maintain them. And we live by what we preach. We've been paying out at a ten percent level for the last three or four years, and we hope to continue at that level.

PND: Defenders of the status quo argue that an increase in the payout rate to ten percent, or even six or seven percent, would lead to more foundations spending themselves out whether they wanted to or not. Is that a legitimate concern?

"...I don't think any foundation should exist indefinitely; I don't believe in perpetuity. I think people should do their job, get out of the way, and let the next generation develop its own foundations...."

RG: Absolutely. But I don't think any foundation should exist indefinitely; I don't believe in perpetuity. I think people should do their job, get out of the way, and let the next generation develop its own foundations.

PND: What about the argument that much of the value foundations contribute to society lies in the knowledge they accumulate over decades of work? Wouldn't much of that value be diminished or lost if large numbers of foundations were forced to spend themselves out?

RG: There's an assumption in that argument that knowledge would be lost. I don't agree. It's the job of foundations to disseminate the knowledge they accumulate and make it widely available so that other people can benefit from it, just like in any other activity, be it business, politics, et cetera.

PND: Your fund has been in existence for more than fifty years, and you've said you'd like to see it continue to operate for another ten years after your death, so it could very well have a lifespan of seventy years or more. Would you have been disappointed if the foundation's lifespan had been shortened by factors out of your control?

RG: I'm not sure I know what "out of our control" means. But I will say this: We have had a great run and will continue to have the opportunity to do things that we believe are important. Now, seventy years is a long time, and if we could spend down before we got to that milestone, I think we'd do it. As I've said, I have no desire to see the foundation go on indefinitely. Everything should have a lifespan.

PND: Are your fellow philanthropists in the Bay Area coming around to your way of thinking?

RG: Not that I'm aware of. In fact, mine seems to be the only voice raised in opposition to the leaders of some of the older, more established foundations, many of whom seem to be more concerned with job protection through endowment building. To tell you the truth, I think many people have forgotten what the purpose of philanthropy is, namely to give money away. The world has never seen greater need, and those who have or control the financial resources to do something about it should be doing everything in their power to assist.

PND: Many people argue that private foundations should not and cannot be expected to solve the world's problems and that their assets, instead, should be viewed as a form of risk capital to be preserved, if not in perpetuity, then for the long haul. Do you agree?

RG: No.

PND: Because you believe private foundation dollars can have immediate impact?

RG: That's right. And where they don't, others will come along and pick up on some of the current problems while contributing new solutions.

PND: Can give us an example from your own experience of philanthropic dollars that have been used to make an immediate impact?

RG: Six years ago, at a time when I was following what other people were doing to purchase and protect land from development, it occurred to me that Alaska might be a good place for us to invest some of our funds. We settled on an amount and agreed that we would commit to be a catalyst for change within a three-year timeframe. Then we contacted three different environmental groups and asked them to work together to select parcels of land where we could apply our money. We made sure they understood that, after three years, we were finished; we simply wanted to establish a template for others to follow. Since we've fulfilled our pledge, I understand that those three groups have raised at least six times as much money for future land purchases in Alaska, and we've derived great satisfaction from knowing that we were able to start something that will make it possible for the state to preserve more of its natural resources than it probably would have had we not gotten involved.

PND: The tech boom of the mid- to late '90s turned dozens of entrepreneurs in the Bay Area into millionaires and, in many cases, philanthropists. Have you found that entrepreneur/philanthropists nurtured in the hothouse environment of Silicon Valley are more sympathetic to the idea of making an immediate impact with their philanthropic dollars than people you've met from other industries or regions of the country?

"...I don't see myself as going out and trying to whip up interest in my views. If people care about what I care about and they want to get on board, they're welcome to do it — in their own way, shape, or form...."

RG: That's a hard one for me to answer, because I don't see myself as going out and trying to whip up interest in my views. If people care about what I care about and they want to get on board, they're welcome to do it — in their own way, shape, or form. As far as I'm concerned, all I'm doing is speaking to what I believe. If people want to hear it, fine; if they don't, I'll go on with my philanthropic work, which is consistent with what I've been saying.

PND: What has most surprised you about the way the field of philanthropy has changed over the last twenty-five years?

RG: Our government has made it much more attractive for people who have the means to give philanthropically —— it's probably the most supportive government in the world, in that regard. Now, I happen to believe the original intent of laws passed to encourage philanthropy was to get people to contribute to those who were in need, wherever they might be. But after the payout requirement was established by the Tax Reform Act of 1969 —— originally, it was six percent —— it changed that equation by allowing a larger share of the philanthropic pie to be spent on overhead. It is the equivalent of a tax dodge.

The Goldman Fund has never used any part of the five percent for overhead. We try to keep our costs to a minimum and we cover them out of pocket, because we believe that philanthropy should not be used for higher salaries, fancy office buildings, or the like. And frankly, I am appalled by the abuses perpetrated by those who are selfishly motivated.

PND: But aren't those abuses the exception rather than the rule, and haven't they always been a part of the philanthropic landscape — we just happen to be hearing about them because the press is paying more attention to the field than it has in the past?

RG: Yes, I think they've been happening for some time and the media wasn't paying attention. But the press and the public have gotten wise, and it's time for foundations to change.

PND: What's your proudest achievement as a philanthropist?

RG: There are several, and they all seem to be characterized by creative planning and responding to a need that nobody else has picked up. Within the last two months, for example, we've seen the opening of the San Francisco Conservatory of Flowers in Golden Gate Park, which was closed for many years after a windstorm severely damaged the place. That was shortly after my wife passed away, seven and a half years ago, and at the time we were approached to see if we would like to make the lead gift to the campaign to refurbish it and to name it in her honor. We thought it over and eventually made the gift, but on the condition that it would always be known as the San Francisco Conservatory of Flowers. It reopened about six weeks ago, and the public interest has been way beyond everyone's expectations. It's a beautiful facility, and it's nice to have people come up to you and say, "If you hadn't made that lead gift, it might not have happened." It's hard to express in words the feeling you get from having done something like that.

PND: Is that a message people in their twenties, thirties, and forties can relate to?

RG: I think so. Recently, I addressed a breakfast meeting sponsored by a local business newspaper, and most of the thirty or forty people there were young and already thinking philanthropically. They greeted my remarks enthusiastically, and many of them approached me afterward and asked how they could get started doing the kind of things we do.

PND: What advice did you give them? What's the first thing you would tell a young philanthropist just starting out?

"...Because I really don't know where you find qualified people to do philanthropy, I would say that you just have to take a chance on someone who is bright and desirous of helping you make a mark...."

RG: I think the best thing I can do is to reflect on our own experience. When Rhoda and I reached a point in our married life where we were getting more requests for help than we could pay attention to, we hired a fellow to take care of some of that for us, and as our resources increased, we built an organization that was reflective of our interests. Because I really don't know where you find qualified people to do philanthropy, I would say that you just have to take a chance on someone who is bright and desirous of helping you make a mark. If you do that, good things will happen.

PND: And I think we'll have to leave it on that note. Thanks very much for your time this afternoon, Mr. Goldman.

RG: Thank you.

Mitch Nauffts, PND's editorial director, interviewed Richard Goldman in November. For more information on the Newsmakers series, contact Mitch at mfn@fdncenter.org