Thank you.

I have been writing about UK trusts and foundations for 18 years but this has now come to an end – I am handing over to others – so the invitation to speak here today came at a very appropriate time for me!

I am going to talk about why endowed charities – those set up in perpetuity to be funded by the investment income from the original gift – so often end up failing to meet the hopes and expectations of their donors.

I am sure that we would all hope to see the charities they had endowed continue to act over the centuries with energy and enterprise. However, even in Britain today there are, I have found, many that do not meet this test, but I am going to suggest that this is an endemic problem with endowed charities in all ages and everywhere, rather than just being a short term issue for us here and now.

Endowed charities are very odd institutions. They have to pursue purposes set out for them long ago, often in circumstances quite different to those that then existed. They must also do this without the main characteristic that keeps other kinds of charity more or less on the straight and narrow.

Other kinds of charity have to keep the confidence of those who are supporting and funding them. If they don't, they simply disappear and trouble us no longer.

But his does not apply to endowed charities. After a time, the donors who created them are no longer around – but the income continues to flow, not just for a while but indefinitely; we must think of generations and centuries, not just years – and now without any living donors whose confidence has to be maintained. A main pressure to stay active and relevant is permanently removed.

Accordingly, the history of endowed charities is commonly one of decline and decay once the original donor and his family or close associates are no longer on the scene. This then leads to scandal, both for individual foundations but also for endowed charities generally. Scandal, when sufficiently prolonged, is in turn followed by either abolition and seizure of the assets, or by reform – but the reform is usually temporary and the cycle soon reasserts itself.

We have had such cycles in this country, but they appear to me to be pretty much universal.

I am lucky, I think, to have been involved with foundations here when they are in an upswing. Most UK foundations, by this historical standard, are doing pretty well – a period of reform. But this is not so in other places and we only have a brief opportunity to build up our defences against the next downswing.

This is especially important as the unprecedented 20^th Century economic surge has led to a high proportion of the total money in UK endowments being recently donated, with the donor or the donor’s close relatives still constructively involved – the Allen Lane Foundation is itself a happy example. But in the nature of things these ties must soon be loosening and their trusts will enter the danger zone.

What do I mean by decline or decay? These are things it is often easier for an historian to see in the past than it is for us in the here and now. I think I see an upswing because I see, I think, increasingly frequent evidence of the application of thought and energy to an increasing number of trusts and foundations. More and more often I see conscious decisions being made about both the short and the long term purposes of foundations. There are fewer every year that have simply inherited these, or have just adopted without apparent thought the accepted policies of others around them.

Some of this may be window dressing. I am suspicious, for example, of the numerous policy reviews I see reported which simply reaffirm trustees' existing policies and practices and confirm their wisdom in having devised them in the first place.

Ideally, all I seek will be set out by the charity in its annual reports and other documents. This has always been done by a few. The annual reports of the Carnegie UK Foundation date from before my time. Place in every main public library, they have long described clearly the careful identification of changes which it believes that the foundation might be able to bring about and the planning of complex long term programmes for their achievement. Though still a minority, more and more trusts are seeking to emulate them

Peculiar to our own time are the many trusts which are simply grantmakers. I have become increasingly uncomfortable about this, even when it is done with care and sensitivity and to the satisfaction, even the admiration, of everyone else around.

But grantmaking is not itself a charitable activity. It is just a means towards some further charitable end. And it is my experience that unless that end is carefully chosen and defined (and regularly redefined as circumstances change) full value is difficult to achieve from the resources available.

It is rewarding, of course, to satisfy applicant organisations; but neither is that in itself a charitable purpose.

This is just my practical experience over a short period in contemporary Britain. But a lecture like this is a chance to take a wider view. In our daily work, if we look even ten or twenty years forward or backward we are generally doing pretty well.

One result can be that, while facing what seems to be a new, contemporary issue, we are actually re-enacting an old, old pattern. I wonder if this may just have happened to the Attorney General of New York State, Mr Elliott Spitzer?

Though endowed trusts and foundations are not at present under public attack in Britain, this is not the case in the USA. For nearly half a century there have been vigorous political attempts to rein in the spread of philanthropic foundations.

Most recent is Mr Spitzer’s proposal to ban outright the endowment of new foundations unless they are sufficiently large to enable effective government regulation. He talked of a general climate of malpractice among such smaller endowed foundations in his state. A survey was done and suitable lists of abuses were provided to an eager press – typical would be tax fiddles, or the gross overpayment of staff or suppliers connected to the trustees: jobs for the boys of various kinds.

I was struck by one particular aspect of Mr Spitzer’s proposal – the idea that new foundations must be big enough to allow proper control. I thought I had seen it before, almost in the precise words of his press release. And indeed I had, when as a schoolboy I read Gibbon's Decline and Fall of the Roman Empire.

My first thought was that Mr Spitzer was repeating in some way the famous campaign against the endowed monasteries of Ephesus in, I think, the Sixth Century. In that affair the endowments were seized and the monks and nuns were given the choice of either marrying each other or of being blinded on the spot – apparently and most impressively they split about 50/50 on the issue. But, happily, this was not the precedent for Mr Spitzer.

I found what I wanted when I came to the Emperor Nicephorus II. In 964 he took Mr Spitzer’s exact step of banning the creation of new endowments unless they were large enough to be kept easily under the Imperial eye. To justify the measure he too, exactly like Mr Spitzer, had had a sample survey made and produced his own list of the abuses that were found. I wonder if Mr Spitzer was aware of the precedent.

In fact, campaigns against endowed institutions appear again and again, and all over the world. They are apparently normal, to be expected and to be planned against.

In this country, I suppose we start with the dissolution by Henry VIII of the endowed monasteries, with their charitable chantries and schools. There was then a period of renewal, with the endowment of the new secular grammar schools and of numerous charities for the relief of poverty and for setting young people upon work – the apprenticing charities. But the decay into which they in turn had fallen by the start of the 19^th Century is well known. Trollope’s story of the almshouse Warden was a typical contemporary example.

This time the scandal led to the creation of the Charity Commission. The Commission encouraged many trusts to clean up their acts but when I started looking at endowed trusts and foundations, one hundred years later, there were still all sorts of blatant mismanagement.

• There were relief of need charities handing out annual doles to everyone over the age of 65, regardless of their means;

• foundations having their financial and professional affairs handled by firms connected to particular trustees, without thought to the obvious conflicts of interest;

• even more which were simply not spending their income, just accumulating it year on year.

• in other cases the trustees no longer even bothered to meet.

• income from endowed trusts had been absorbed into the local authorities who were their charitable trustees; the Welsh Church Acts Funds being an extreme example

• other trusts simply handed out grants to the same unchanging list of charities for decades on end. One such trust threatened us with legal action for defamation even though we had pointed out that two of the charities listed as receiving their grants no longer even existed.

Transparency must be the first line of defense against this kind of petty abuse. We can make malpractice less likely by ensuring that it is exposed to public view.

This is why I have kept on writing about trusts and foundations for a quarter of my working life. When I started I naively thought a little publicity would be enough to persuade the trustees concerned to end such obvious malpractices.

Well, to a small extent it may have helped do so, but even if it did I wholly misjudged the time it would take. After a few years we were much encouraged by a memorable Chief Charity Commissioner, Robin Guthrie, who protected us from incessant legal bullying by referring complaining trustees to what he nicely called ‘the beneficial light of public scrutiny’ (particularly striking support, incidentally, as Robin had been Director of a trust himself, the Joseph Rowntree Foundation).

But many trusts simply chose to stay secret and just accept a bit of criticism for doing so. And as they were endowed, while we were not, so they could reasonably expect to outlast us. For years on end the Charity Commission allowed this, despite their longstanding official policies to the contrary and our repeated urgings.

It is early to celebrate, but it now looks as if another progressive Chief Charity Commissioner, John Stoker, has at last grasped the nettle. As with his predecessors for 18 years, we sent him last year a copy of our most recent work on trusts in which we had, as usual, identified various failings. He has had a group of the most glaringly inadequate bought to book by the Commission – and threatened with no less than a formal Commission enquiry if they fail to bring their public reporting up to shape – a heavy gun in Commission terms. If followed through, it will be impossible for trusts to evade public criticism and comment just by keeping their policies and activities secret.

But transparency can only take you so far, and there are worse dangers facing endowed charities than the kinds of petty misdemeanours I have described.

I see also two more general and longer term problems:

First, the tremendous natural force of conservatism, of simple resistance to change, applies even more strongly to endowed foundations than to other charities. They have no need to keep with the changing expectations of their donors and supporters. So the principle of 'what we have, we hold' can have free rein.

And change brings dissatisfaction and blame. Trustees are relied upon by those they fund. Stop funding them and these people will feel betrayed.

And when change is eventually forced upon an endowed foundation, the change may well not be of a kind that would have appealed to the original donor. It is as likely to be a change that will be in line with something quite different, the received wisdom of the present – incidentally, as most trustees are elderly, this is often the received wisdom of say twenty years ago as far as most other people are concerned. When this wisdom conflicts with the purposes of the original donors, the purposes of the donor are often the ones to be ditched.

I will give a well known example, before moving on to whether this could be happening today. Think of how the money donated in earlier times to schools for the education of the poor was widely diverted by the Victorians to the exact opposite – usually with the active support of the trustees concerned.

How could this happen? How could a great and far from reactionary figure like Archbishop Tait, when Bishop of London, argue that the money for the education of the poor of the City of London (where there had come to be few resident children of any kind) should be transferred to the 'Corporation for Middle Class Education'.

There was nothing particularly wrong with Tait. He was simply implementing the commonplace educated and enlightened opinion of the day – he was indeed, one of us. And at that time, people like us had generally agreed that ‘indiscriminate education’, as it was called, was an evil to be avoided. The education of citizens to a level above that required for their probable stations in life, would lead to uncontainable discontent, even to revolution – which would be equally destructive to all. Thus they had a moral duty to oppose it.

Those who wanted to end such free education had, of course to deal with the problem of the law. The donors had been clear. The endowments were, typically, for the education of those who were 'pauperes et indigentes'. And, as Victorian judge Lord Justice Linley put it ‘I doubt very much whether a trust would be declared to be charitable which excluded the poor’

However when right thinking people are agreed, the law is easily fixed. Set up a Royal Commission and it will happily say that black is white, if that is the received wisdom of the day, and the judges will fall into line.

For example, the Clarendon Commission on the endowed public schools gave the following three reasons for black being white, or for why they should continue as schools for the rich when their founders had said they were to be for the poor:

• they couldn’t assign a precise meaning to the word poverty;

• nor could they decide what ‘indigentes et pauperes’ – poor and indigent – any longer meant;

• and finally, in the modern age didn't the best way to prevent poverty lie in giving the widest encouragement to industry and commerce – a surprisingly New Labour view.

And with that the battle was lost, the judges were ordered into line and the trustees of these schools, to the present day, continue to collude in a direct betrayal of their donors' intentions.

Incidentally it seems that a turning point in removing the fear of indiscriminate education – or at least in replacing it by another bogy – was as strange as the original doctrine itself. It came when it was widely reported in the English press that the Prussians were helped towards their victories over the French in 1870 by the fact that most of their troops could understand written orders, a military advantage not then obtaining in the British army.

This kind of subversion of a donor’s intention can happen in any field of charity. An opposite extreme was the case of the animal loving Mr Browne, of Dublin who left a large gift to University College London to endow a hospital for animals. The college, as trustees, got the then new Charity Commission to agree they could use the money instead for some of their own professorships. They were only baulked because the sensible Mr Brown, anticipating such a possibility, had said that if UCL did not set up the hospital, the money should instead go for the study of Sanskrit at Trinity College, Dublin, and Trinity, being on the ball, had UCL’s plans stopped in their tracks.

Could this still happen? Every generation supposes that it is immune to the absurdities that it sees so easily in the affairs of its forefathers. It is also easy to think that such absurdities came only from the reactionary and stupid, rather than from decent, progressive people like ourselves. But it is not so.

Indeed, is it possible that we ourselves may also be blind to the future implications of some of our own unthinking assumptions? Might some successor at this lectern in a hundred years time be laughing at us as I have been mocking the Victorians? I have asked around and had a wide range of ideas, but may I suggest a possible candidate of my own?

There are many ancient endowed trusts in this country for the direct relief of poverty. We at the Directory of Social Change publish a book listing them. They were set up at a time when there was no more doubt about what constituted poverty than there is in parts of, say, Africa today. It was simple destitution or want – the lack of food, clothing or shelter – evils to be found everywhere and existing from time out of mind. This is what they expected their money to be used for.

Yet how much of their money is still being used for that purpose? Happily, there are now few people in this country who are in need of food, clothing or shelter in any sense that would have been recognisable to these donors then, or in Africa now. The money is used for other purposes, admirable in themselves, for example for community development or to tackle what is euphemistically called ‘relative poverty’ (a phrase designed to cloud exactly this issue). These are fine endeavours, but they are different ones to the relief of poverty as the donors envisaged it.

Is this because there is no destitution to be relieved? Obviously not – I could shower you with photographs of starving people that arrive in appeals through my own letterbox. We can see people dying of want on our television sets almost every week.

But because it is happening outside the originally defined geographical area of benefit of such charities, we seem to have silently but collectively decided that it is not the business of the endowed charities we have for the alleviation of just such horrors.

But is it? Under the doctrine of cy-près, meaning more or less, the next nearest, trustees have a choice to make when the original purpose cannot be met in the place named by the donor. Either they can extend the area of benefit to cover areas where those purposes can be met in the way intended or they can decide to address some related purpose in the original area. Neither approach has any automatic preference over the other.

So why, in the case of poverty, is only one of these possibilities ever discussed – that of changing the purpose? Is the possibility of continuing to feed the hungry or clothe the naked even been considered any longer? Is it because the Charity Commission would not accept such a widening of the area of benefit? I have not seen any such decision, let alone any protest against such a decision.

I am sure there are, somewhere, trustees who have actually done just this. But I have read the reports of many hundreds of such charities and not come across it yet.

Are there perhaps donors, now in heaven, who say to their friends up there, ‘well, its nice to know that the income from my earthly fortune is being used to feed the hungry and clothe the naked’ – and if St Peter drops by and says ‘Oh no, it isn't’, could we, their present trustees on earth, justify ourselves? Could we even say that we had at least considered continuing to use his or her money for these purposes before we finally decided to do otherwise?

I would be at risk myself, having been involved with such charities for years without ever raising the issue.

Why are we like this? Why do we find it so hard to think beyond the accepted practice of the day? We all find it hard to step out of line; our opinions as well as our fingers beat unconsciously to the rhythm of others around us. We seem hard-wired to march to a single drum. Yet if history suggests anything, it is that its those who do succeed in stepping out of line who will get a favourable report in the long run.

I suggest therefore that we need at least to structure endowed charities so as to maximise the chances of them being open to alternatives to the received wisdom and accepted good practice of the day. I fear that in practice we actually have something close to the opposite.

I can only say what I would do, if I were ever in a position to endow a charity myself, or to influence the work of an existing endowed charity.

Along with at least two of my predecessors on this platform, I must repeat the thought that a self-appointing board of trustees may be the worst possible form of governance for an endowed charity. We naturally appoint people who approve our own policies and judgements. This builds in resistance to change.

I would have the trustees of the FitzHerbert Foundation nominated independently by other persons or organisations. This has long been the case already for some foundations. The City Parochial Foundation is an example.

I don't think I would worry much about who the nominators might be, only that they be wholly independent of the existing board. That is

• with no previous commitment to the existing policies and practices of the charity

• no connections with existing trustees

• and why not a generation younger than is common practice at present?

Secondly, as another almost commonplace, it seems to me that all endowed trusts should be required to have specific, published objectives and plans for achieving them. This is already an unenforced requirement of the Charity Commission. I would put it in my trust deed.

Incidentally, I personally see twenty or twenty-five years as a perfectly normal time-span for a programme of work. I hope there would be few three-year projects grants from my foundation.

Only if there are stated intentions and plans on the table can there be pressure on institutions to live up to them. A mere legal requirement to stay within the law of charity is not, I suggest, the same thing.

In my lifetime, a great example of this approach was been the US Carnegie Foundation's report by Gunnar Myrdal called 'An American Dilemma'. In this, Myrdal gave a comprehensive account of the discrepancy between the actual position of black people in the USA and the accepted moral values of the US Constitution. He said that as long as this discrepancy was kept visible, the position would, in the long term, be unsustainable. And happily, this did indeed turn out to be the case over the succeeding 50 years.

Nor is it enough, I think, for a grantmaking trust to simply have an 'area of interest'. On its own, this can just lead to a rag bag of disconnected funding schemes. The funders must have a strategy of their own; it is not enough, I suggest, to simply ride on the backs of the organisations that they support.

Third, if a trust accepts the view that the ability to take risks is one of the distinguishing merits of endowed charities, they need to report the corresponding failures. Risk means failure.

In my view if a trust is not regularly reporting failure, it is either not taking risks or is not reporting truthfully on its work. In my experience Oxfam has been unique in its willingness to report seriously on its failures – and it doesn’t seem to have harmed that charity, even though it is not endowed and has to satisfy a pretty demanding bunch of donors.

These are pretty conventional suggestions. All of them, I think, have been made previously from this lectern as well as elsewhere.

But at least for larger endowed charities, I would go one stage further. Though many boards of trustees do achieve it, trustees cannot be safely relied on to report objectively on their own activities. It would help, I believe, if their work was subject to annual, independent and public review.

This could be done by nominating each year a 'special trustee'. This 'special trustee's' only job would be to report publicly their independent opinion on the extent to which the trust had been thoughtful and energetic in setting about its business.

The report might be expected to cover

                The existence and regular review of clear short and long term objectives

The existence of arrangements to achieve these objectives, actively reviewed and developed as policies or circumstances change

The energy, or otherwise, with which these arrangements were implemented.

I am not suggesting that an independent opinion like this should be mandatory.

It is just what I myself, after watching a large of number of trusts over quite a few years, would require, were I ever in a position to endow a trust in my own name.

Having done this, and made the other arrangements I have described, I would have much greater confidence that the trust would defy the temptations inherent in having a perpetual endowment and continue in active and useful existence after I was gone.

Thank you.