Newsroom

How philanthropic dynasties are exerting their power over US policy

David Callahan | Opinion | The Guardian | 25 Jul 2017

Too much inherited wealth is a bad thing in a country that was founded in opposition to aristocratic privilege. Some of the wealthiest people in the US agree. Billionaires such as Warren Buffett, Bill Gates, and Michael Bloomberg have vowed to leave only limited money to their children – instead committing the bulk of their fortunes to philanthropy.

Buffett has been especially outspoken about this. After he and Bill Gates announced the Giving Pledge in 2010, to encourage the wealthy to earmark their estates for charity, Buffett told 60 Minutes: “I don’t really think that, as a society, we want to confer blessings on generation after generation who contribute nothing to society, simply because somebody in the far distant past happened to amass a great sum of wealth.”

Yet as good as all this sounds good, a thought that seems not to have crossed the minds of Gates and Buffett is that dynastic power and privilege in America can take different forms – one of which is the influence that comes with controlling a family foundation. In fact, there may be no better way for the super-rich to ensure the clout of heirs for generations to come than to lock up their wealth in a foundation.

Studies have found that wealth that is directly passed down to heirs tends to disappear pretty quickly. It’s gone in most cases by the second or third generation, according to one 2015 analysis.

Private foundations, on the other hand, offer a way to preserve – and grow – estates over many decades and even centuries. There are more than 90,000 private foundations in the US, with over $800bn in assets, almost half of which are under family control.

Such institutions offer a powerful means for heirs to wield influence in society long after the original benefactor is gone. For example, a full century after the investor John Emory Andrus created the Surdna Foundation, its 12-member board remains controlled by his descendants, including members of the fifth generation. Surdna has assets of more than $1bn and gives away over $40m a year. It works to have influence in a range of areas, including over environmental and economic policies.

The Rockefeller Brothers Fund, established by John D Rockefeller’s grandsons in 1940 and still controlled by family members, also works actively to sway public policy. Other family-controlled foundations, like the William Penn Foundation in Philadelphia, have lots of influence at the local level.

One benefit of controlling family philanthropic wealth is social status. Even if you don’t have much of your own money, the ability to give out grants means that people seek you out and pay attention to what you think. You’re asked to sit on boards and attend elite events. While that kind of popularity may not sound like it confers “blessings on generation after generation,” as Buffett described it, such status and access is a very real currency of power in society.

Buffett himself, by the way, has been giving billions of dollars to the four family foundations controlled by his three children, Susie, Howard and Peter. While most of his wealth is earmarked for the Bill and Melinda Gates Foundation, the share going to Buffett family foundations is large enough that his children have become some of the world’s top philanthropists. Susie is an especially influential figure as chair of the Susan Thompson Buffett Foundation, which is the largest private funder of reproductive health and family services in the US.

Rebekah Mercer, the daughter of the hedge fund executive Robert Mercer, has wielded even more power lately, in part through the family foundation bankrolled by her father. In recent years, Rebekah has helped distribute tens of millions of dollars in grants to conservative groups across the US. That giving, along with her father’s major political contributions, have made Rebekah a key power broker on the right and an influential figure in the Trump orbit.

With trillions set to flow across generations in coming decades, inherited power through philanthropy is likely to become a lot more common. An ever larger number of heirs with ever larger resources are coming to populate the world of philanthropy and nonprofits, with many of them taking an activist approach to making change. We’re seeing the rise of a new class of super-citizens who have come to that position through birth and can speak with a volume in the public square unimaginable to most people born to more ordinary families.

Yet if inherited power feel deeply at odds with the US’s egalitarian ideals, its actual effects on society are hard to gauge. And how you feel about heirs empowered by dynastic philanthropic wealth may well depend on your politics.

Heirs tend to be more liberal than the business leaders who typically create family fortunes. Instead of struggling upward, heirs grow up in privilege, with the kind of post-materialist worldview that lends itself to concerns about poverty or the environment. Rebekah Mercer is unusual in the degree to which she shares the far-right politics of her financier father.

More typical are heirs such as Swanee and Helen Hunt, who rejected the conservatism of their father, HL Hunt, who was among the richest men in America. The Hunt sisters have used their inherited wealth to bankroll a range of progressive causes, such as global peace and women’s equality.

There are many similar examples. When the Republican mega donor Harold Simmons died in 2013, he left his two daughters in control of the family foundation named after him, which was slated to receive some of Simmons’ $8bn fortune. Neither of these women shares their late father’s worldview, and foundation money in recent years has flowed to a number of liberal groups.

Warren Buffett is fairly liberal in his own right, but his son, Peter, is further to the left and the NoVo Foundation he created with his wife Jennifer is one of the most progressive big new grantmakers to emerge in recent years, with a focus on empowering young women of color, among other priorities. The three children of Jim Simons, a top hedge fund billionaire, have all created foundations with progressive agendas.

Overall, heirs who gain power through family philanthropy seldom seem inclined to use it to reinforce upper-class dominance. Quite a few embrace the opposite goal and find support in networks like Resource Generation, a nonprofit which “organizes young people with wealth and class privilege in the US to become transformative leaders working towards the equitable distribution of wealth, land and power”.

Many conservative donors are so wary of the seemingly inevitable liberalism of their descendants that they create foundations that sunset after a fixed period, like the Olin Foundation, which closed its doors in 2005.

When heirs do take charge of family foundations, they often know what they’re doing. Some have spent years preparing to be smart philanthropists and wise stewards of philanthropic wealth. A good example is Katherine Lorenz, the thirtysomething president of the George and Cynthia Mitchell Foundation, which is based in Texas and endowed with the energy fortune created by the late George Mitchell, who was known as the “father of fracking.”

Lorenz spent her 20s working on the front lines of global poverty issues in Latin America and later immersed herself in intensive learning to understand philanthropy – including guidance from a Rockefeller heir, Margaret Dulany, who with many years of experience in using family wealth for social impact.

The only reason Lorenz now presides over the George and Cynthia Mitchell Foundation, which makes millions of dollars in grants annually, is because she’s the granddaughter of the benefactors. But it’s also true that Lorenz is eminently qualified for the job.

The fact that many heirs are embracing philanthropy as a career is good news and bad news. It’s good news in that we’re unlikely to see a bunch of empty-headed rich kids giving away billions, or at least this hasn’t been the pattern so far. It’s bad news in that we’re seeing a marked expansion of the kind of sophisticated elite power that so many Americans find unnerving.

In this case, though, we’re not talking about expert leaders who at least ascend to their influence through quasi-meritocratic systems. We’re talking about elites who are born into that power, and come to exercise it at considerable expense to US taxpayers, who help foot the bill when new family foundations are created.

So far, most Americans are unaware of the growing power that heirs are wielding through philanthropy, and there has been minimal backlash against this trend. But there has been pushback lately against elite power writ large, as seen in social movements like the Tea Party and the presidential campaigns of Donald Trump and Bernie Sanders – not to mention years of polls showing declining public faith in most institutions and growing hostility to the wealthy.

One reason so many Americans chafe at being ruled by experts and rich people is the sense that these people are out of touch with their own life experiences. There’s a lot of truth in that. For all their training and expertise, as well as their obvious empathy in many cases, philanthropist heirs raised in comfort and privilege can’t possibly understand what it’s like to live in certain circumstances.

And, yet, as donors, they have the ability to powerfully intervene in ordinary people’s lives, both in America and around the world. That doesn’t seem right in a country founded in opposition to aristocratic power. And it doesn’t seem sustainable in an America that’s so often rebelled against elite rule.

Even if philanthropic heirs use their power wisely much of the time, it’s hard to imagine that this situation will sit well with the US public in a future where many more heirs exercise ever-growing influence in society. One of these days, America’s hidden system of dynastic influence will, and should, come under greater scrutiny.

Editor's Note: Katherine Lorenz is the chair and interim CEO of The Philanthropy Workshop.

Categories

Archives