Why Foundations Should Care About Shareholder Votes

To the Editor:

The Chronicle and Harvy Lipman are to be congratulated for the excellent articles on foundations’ failure to vote their proxies in line with their missions (“Meshing Proxy With Mission,” May 4).

In 1997 William B. McKeown of the law firm Patterson, Belknap, Webb & Tyler, in the Journal of Investing, concluded that trustees “in order to fulfill their responsibility to see that the [foundation and nonprofit] corporation meets its charitable purposes, may have the duty to consider whether their investment decisions will further those charitable purposes, or at least not run counter to them.”

Thus, most foundations are not meeting their fiduciary duty and there is no one to challenge them to do so. The aggrieved cannot afford to question the hand that feeds them.

The corporatization of boards is one factor. Why should one corporate leader offend his colleagues, or have to contemplate being on the receiving end of a shareholder resolution?

The idea that the source of the original money is a constraint is absurd. Rockefeller and Ford in their grant making and proxy voting obviously see no conflict. I know of no foundation that carries the stigma of what the founder may have done in another time.

Yes, it takes time to vote proxies, especially in the larger foundations. But to prepare guidelines to investment managers is not time-consuming.

The process is a useful exercise to further define a foundation’s values and mission, and to reduce the dissonance between that mission and the way the foundation’s funds are invested.

Investment managers without instructions from owners usually vote their proxies with management. But delegating proxy voting without guidance is a breach of fiduciary duty.

In 1990 the Labor Department issued Interpretative Bulletin 94-2, which required trustees of pension plans governed by the Employee Retirement Income Security Act to maintain records and monitor the compliance of their managers’ proxy votes.

Foundations should be doing the same thing.

If proxy voting has any effect on shareholder value it is more often than not positive, and rarely if ever negative.

Efforts to get companies to reduce their carbon emissions and toxic waste have had a positive effect.

So too have efforts to increase diversity on boards and in the work force, and to manage supply chains taking into account conditions of work and the community and environmental impacts.

A well-managed company listens to its shareholders and makes reasonable changes brought to its attention. In most cases the shareholder process is the result of failed discussions.

Foundations own $600-billion of the American and global economy.

Just as grant dollars are husbanded with care to ensure that they fulfill the foundation’s mission, so too should the foundation’s proxies. This is not only their right but also their fiduciary duty as owners.

Steve Viederman
Former President
Jessie Smith Noyes Foundation
New York

To the Editor:

There’s another aspect to the untapped financial power of foundations that deserves more attention: investing a portion of those sizeable assets directly in the sector.

A growing number of nonprofits are on a path to building sustainable business models that will result in greatly expanded public services but lack the capital to improve their capabilities to achieve their potential. If foundations invested just a tiny portion of their portfolios in nonprofit organizations in this way, it would transform the sector — while at the same time still bringing a reasonable rate of return to the foundations. There are a handful of foundations doing this with impressive results.

With little risk, the foundation community could make a huge impact, with long-term effects.

Bob Ottenhoff
Chief Executive Officer
GuideStar
Williamsburg, Va.