Harvard Case - Choosing a Charitable Giving Vehicle
"Choosing a Charitable Giving Vehicle" Harvard business case study is written by Robert C. Pozen, Mayur Desai, Maura A. Graul. It deals with the challenges in the field of Accounting. The case study is 16 page(s) long and it was first published on : Dec 11, 2013
At Fern Fort University, we recommend the establishment of a private foundation as the most suitable charitable giving vehicle. This structure offers the greatest flexibility, control, and long-term impact for the University's philanthropic endeavors. The foundation will allow Fern Fort to strategically allocate resources, build a robust endowment, and maximize its charitable contributions while adhering to ethical and legal standards.
2. Background
Fern Fort University, a prestigious institution with a strong commitment to academic excellence and community engagement, faces a critical decision: choosing the most effective vehicle for its charitable giving. The University seeks to maximize its philanthropic impact while ensuring responsible stewardship of its resources. The case study highlights the University's current practice of direct donations and its desire to explore alternative options like donor-advised funds, private foundations, and supporting organizations.
The key protagonists in this case are:
- The University's Board of Trustees: Responsible for overseeing the University's overall strategy and finances, including charitable giving.
- The Development Office: Responsible for fundraising and managing donor relationships.
- The President: Responsible for setting the University's overall vision and ensuring alignment with its mission.
3. Analysis of the Case Study
To evaluate the suitability of each charitable giving vehicle, we will utilize a framework that considers the following factors:
1. Control and Flexibility:
- Direct Donations: Limited control over how funds are used, dependent on grantee organizations.
- Donor-Advised Funds: Some control over grantmaking, but limited flexibility in terms of investment strategies.
- Private Foundations: Significant control over grantmaking and investment strategies, offering high flexibility.
- Supporting Organizations: Limited control over grantmaking, but can offer tax advantages for donors.
2. Financial Considerations:
- Direct Donations: No ongoing administrative costs, but limited potential for growth.
- Donor-Advised Funds: Lower administrative costs than private foundations, but limited investment options.
- Private Foundations: Higher administrative costs, but greater investment flexibility and potential for growth.
- Supporting Organizations: Lower administrative costs than private foundations, but limited control over grantmaking.
3. Tax Implications:
- Direct Donations: Tax deductions for donors, but no tax advantages for the University.
- Donor-Advised Funds: Tax deductions for donors, but no tax advantages for the University.
- Private Foundations: Tax deductions for donors, and potential for tax-exempt status for the foundation.
- Supporting Organizations: Tax deductions for donors, and potential for tax-exempt status for the supporting organization.
4. Long-Term Impact:
- Direct Donations: Immediate impact, but limited long-term sustainability.
- Donor-Advised Funds: Potential for long-term impact, but limited control over investment strategies.
- Private Foundations: Strong potential for long-term impact through strategic grantmaking and endowment growth.
- Supporting Organizations: Potential for long-term impact, but limited control over grantmaking.
5. Alignment with University Mission:
- Direct Donations: May not align with the University's long-term strategic goals.
- Donor-Advised Funds: May not align with the University's specific philanthropic priorities.
- Private Foundations: Offers the greatest flexibility to align with the University's mission and strategic initiatives.
- Supporting Organizations: May not provide the same level of control and flexibility to align with the University's mission.
Analysis:
Based on the above framework, a private foundation emerges as the most suitable option for Fern Fort University. It offers the highest level of control, flexibility, and long-term impact, enabling the University to strategically allocate resources, build a robust endowment, and maximize its charitable contributions while adhering to ethical and legal standards.
4. Recommendations
- Establish a Private Foundation: Fern Fort University should establish a private foundation to manage its charitable giving. This foundation will be a separate legal entity with its own board of directors responsible for overseeing its operations and grantmaking.
- Develop a Strategic Grantmaking Plan: The foundation's board should develop a strategic grantmaking plan that aligns with the University's mission and priorities. This plan should outline the foundation's focus areas, grantmaking criteria, and evaluation metrics.
- Build a Sustainable Endowment: The foundation should focus on building a sustainable endowment to ensure long-term funding for its grantmaking activities. This can be achieved through strategic investment strategies, donor cultivation, and fundraising efforts.
- Establish Strong Governance and Transparency: The foundation should establish strong governance structures and transparent accounting procedures to ensure accountability and ethical practices. This includes adhering to all applicable laws and regulations regarding private foundations.
- Develop a Communication Strategy: The foundation should develop a communication strategy to effectively inform stakeholders about its activities, impact, and financial performance. This includes regular reporting to the University's Board of Trustees and the public.
5. Basis of Recommendations
- Core Competencies and Consistency with Mission: Establishing a private foundation aligns with Fern Fort University's core competencies in education, research, and community engagement. It allows the University to leverage its expertise and resources to make a lasting impact on society.
- External Customers and Internal Clients: The foundation will cater to both external beneficiaries of the University's philanthropy and internal stakeholders like faculty, staff, and students. It will provide a platform for the University to address critical social issues and support its academic mission.
- Competitors: By establishing a private foundation, Fern Fort University can differentiate itself from other institutions by demonstrating a strong commitment to philanthropy and long-term impact.
- Attractiveness ' Quantitative Measures: While the initial setup costs for a private foundation may be higher, the long-term benefits outweigh the costs. The foundation's potential for growth, tax advantages, and control over grantmaking make it a highly attractive option.
- Assumptions: The success of the private foundation depends on the University's commitment to its long-term success, the ability to attract and retain qualified board members, and the development of a robust investment strategy.
6. Conclusion
Establishing a private foundation is the most strategic and sustainable approach for Fern Fort University to manage its charitable giving. It offers the greatest control, flexibility, and potential for long-term impact, enabling the University to make a meaningful contribution to society while upholding its core values and mission.
7. Discussion
While a private foundation is the recommended option, other alternatives should be considered:
- Donor-advised funds: Offer lower administrative costs and quicker grantmaking but lack the control and flexibility of a private foundation.
- Supporting organizations: Provide tax advantages for donors but offer limited control over grantmaking and may not align with the University's long-term goals.
Risks and Key Assumptions:
- Financial Risk: The foundation's success depends on its ability to build a sustainable endowment. This requires careful investment management and fundraising efforts.
- Governance Risk: The foundation's board must be composed of qualified individuals with expertise in philanthropy, finance, and governance.
- Compliance Risk: The foundation must adhere to all applicable laws and regulations regarding private foundations.
8. Next Steps
- Form a Foundation Task Force: Establish a task force to oversee the foundation's formation and initial operations.
- Develop a Charter and Bylaws: Draft the foundation's charter and bylaws, outlining its mission, governance structure, and grantmaking policies.
- Secure Legal and Accounting Expertise: Engage legal and accounting professionals to guide the foundation's establishment and compliance.
- Recruit Board Members: Identify and recruit qualified individuals to serve on the foundation's board.
- Develop a Strategic Plan: Create a comprehensive strategic plan outlining the foundation's focus areas, grantmaking criteria, and evaluation metrics.
- Launch Fundraising Efforts: Initiate fundraising efforts to build the foundation's endowment.
By following these steps, Fern Fort University can successfully establish a private foundation that will serve as a lasting legacy of its commitment to philanthropy and social responsibility.
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Case Description
Elaine White is an accountant advising two couples, the Carsons and the Bradleys, regarding their charitable giving options and related tax strategies. The Carsons are an upper-middle class family with $295,000 in income, a moderate amount of deductions, and straightforward charitable giving objectives. The Bradleys are a wealthy couple with substantial assets, a more complex tax situation, and a desire to control the timing and recipients of their charitable contributions. White must consider the objectives of these families in the context of several charitable giving vehicles, including Public Charities, Private Foundations, Charitable Remainder Trusts, Charitable Lead Trusts, Donor-Advised Funds, and Pooled Income Funds.
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