Philanthropic Critic : Assaying Foundations on Their Policies of Giving

Waldemar Nielsen studies reverse alchemy. That’s what happens when entrepreneurs give away their gold to finance leaden ideas.

Nielsen, who is widely regarded in foundation circles as America’s preeminent philanthropic critic, is fascinated by how men whose bold actions create great wealth often turn into wimps when it comes to giving their money away.

“Big money for small ideas,” Nielsen says about the state of foundation grant making in America. Most large foundations “simply don’t have the ideas, leadership, courage and convictions on a scale comparable to their assets.”

Nielsen’s harshest criticism is leveled at the W. M. Keck Foundation, the largest in Los Angeles and 15th largest in the nation, which he calls the worst big foundation.

In a new book titled “The Golden Donors: A New Anatomy of the Great Foundations” (E. P. Dutton; $25), Nielsen assays the quality of philanthropy at America’s 36 largest foundations, which together have $22 billion in assets, about one-third of the assets of all 23,770 foundations in America.

Nielsen, 68, also alleges flaws and follies at such prominent institutions as the Ford Foundation, the nation’s biggest, the Rockefeller Foundation, long acknowledged as the most prestigious, and the MacArthur Foundation, which financed his new study.

Nielsen, a former Ford Foundation officer and New Yorker writer, is the philanthropic consultant to Atlantic Richfield and has advised such wealthy people as J. Paul Getty and the Hall greeting card family on how to establish their philanthropies. (Nielsen said he urged Getty not to create an operating foundation, saying it would distort world art prices, but his advice was rejected.)

Nielsen first examined the state of philanthropy in “The Big Foundations,” a 1972 book that stirred winds of change in the rarefied air of many major foundations. The book infuriated many foundation trustees, and is widely believed to have cost a few foundation executives their jobs, but it also has won praise for its long-term effect in prompting major improvements at many foundations, notably California’s James Irvine Foundation, which 13 years ago Nielsen called “one of the four warts on the face of philanthropy.”

His new book, written in an Olympian voice and relying heavily on unnamed sources, has also upset many foundation trustees and executives. But more than a dozen leading nonprofit executives and trustees told The Times that despite what each regards as serious flaws in Nielsen’s approach, they believe “The Golden Donors” will have an important long-term impact on the grant-making policies of major foundations.

Nielsen calls the $500-million Keck Foundation “a low-grade foundation controlled by persons with low standards of philanthropic responsibility . . . (which since being activated in 1980) has been continuously embroiled in controversy, litigation and scandal.”

‘Worst in Country’

He wrote that “judged by its record (through mid-1984 the Keck Foundation) was the worst big foundation in the country.”

Thomas M. Reed Jr. of Braun & Co., the public-relations counsel for the Keck Foundation, said there would be no comment.

Nielsen criticizes oilman Howard B. Keck, 72, the president of both his late father’s foundation and the trust that finances it, for taking “hoggish” fees.

Howard Keck, whose personal wealth Forbes magazine estimates at $260 million, received $705,000 last year from the Keck Trust, which finances the foundation. Hanna & Morton, the Los Angeles law firm of his son-in-law, James P. Lower, received $203,000.

Keck has received $2.6 million in fees as a charitable trustee and Lower’s firm has received $765,000 in legal fees in the past four years under an agreement negotiated with the state attorney general’s office. The fees were approved by a Los Angeles probate judge, standard procedure with charitable trusts.

Nielsen notes that while the fee negotiations were under way, Gov. George Deukmejian accepted about $185,000 in contributions to his gubernatorial campaign from Howard B. Keck and a brother, who has since died, who was also to share in the trustee fees. Deukmejian returned the contributions when they were disclosed by The Times.

The fees were challenged by Howard B. Keck’s sister, Willametta K. Day, who declared herself “outraged by her brother’s audacity in seeking these outrageous fees.” Day tried to get the foundation board to investigate the fees, but, Nielsen writes, the Keck Foundation board “dominated by Howard Keck rejected them all.”

Nielsen writes that “the ordinary citizen in appraising the ethics of Howard Keck’s claims against the charitable assets of the foundation might want to take into account such factors as the following: Keck is himself an immensely rich man with a fortune of hundreds of millions of dollars; his duties as trustee did not involve more than a few hours of work per year at most; and although he sought to justify the fees on grounds of the ‘risk’ to which he was exposed in handling the foundation’s finances, his father’s trust specifically absolved him from any such liability.”

Disclosure of the fees, Nielsen writes, set in motion events that prompted the sale of Superior Oil Co., the world’s largest independent petroleum concern, to Mobil Oil in 1984 for $5.7 billion. The Keck Foundation and the Keck Trust held the largest block of shares in Superior. After the sale to Mobil, the Keck Trust diversified its investment portfolio and hired six investment firms to manage its assets.

Nielsen also criticizes Howard Keck for “summarily firing” Carl E. Hartnack, then chairman of Security Pacific Bank’s international board and USC board chairman, as the Keck Foundation president in 1982. Nielsen writes that Hartnack’s “sin was offering a grant of $500,000 to the public television station in Los Angeles (KCET), which was at that moment in acute financial distress, without getting prior approval from Howard Keck.” Hartnack in the past has declined to comment.

‘No Sense of Purpose’

Nielsen also criticizes the Keck Foundation’s grants program for having “no identifiable sense of purpose” and quotes Day, who died Sept. 29, as saying that under her brother the Keck Foundation’s grants list has been “ ‘an embarrassment’ and a disgrace to the memory of her father and mother.”

Nielsen suggests that the Keck Foundation’s internal practices and its giving program may improve in the future, however, because its board now includes “independent trustees of stature,” including engineer Simon Ramo, a founder of TRW, and Walter B. Gerken, chairman of Pacific Mutual Life Insurance.

The Ford Foundation, the nation’s largest with about $4 billion in assets, comes under sharp criticism too, mostly for allegedly mismanaging assets. Had the Ford Foundation’s assets been invested well enough just to keep pace with inflation it would be worth more than $9 billion today, Nielsen calculates.

Nielsen, who was once a Ford Foundation officer, contends that over the past 15 years the Ford Foundation has “dissipated almost three-fourths of the real value of its assets . . . a loss of something on the order of $6 billion in philanthropic resources measured in current dollars. No disaster of comparable magnitude has ever been recorded.”

A Ford Foundation spokesman called Nielsen’s charge unfair, saying Nielsen failed to consider the foundation’s policy of paying out about 8% of its assets during the bear stock market days in the early ‘70s. And, the spokesman noted, since falling to a low of $1.7 billion in assets in 1974 its portfolio has grown to about $4 billion today.

In a detailed autopsy of the Ford Foundation’s grant programs, Nielsen praises the Ford Foundation for its continuing commitment to examining problems and policies affecting the poor.

Nielsen writes that while the Ford Foundation’s current president, Franklin Thomas, began in a “stumbling” manner six years ago, he has taken firm command and created vital new programs.

But Nielsen also details Ford Foundation programs that failed and he describes former President McGeorge Bundy as a “philanthropic gardener (with) a brown thumb.”

Bundy’s Mixed Review

“I get a mixed review,” Bundy said. “It’s predictable that if you start new things you will make more mistakes, or so-called mistakes, than if you just give the money to Harvard. Most of our mixed record comes from giving to grass-roots minority groups.”

One of Nielsen’s major arguments is that foundations should make innovative grants, which by their nature would involve some failed programs.

Bundy contends that “Wally’s weakest passages are on the financial question. He flatly asserts that our (Ford Foundation) investments were unsuccessful. . . .

“He leaves out entirely the deliberate decision of the Ford Foundation trustees to spend capital and acts as if it was a waste when in fact it was a deliberate policy,” Bundy said.

Still, Bundy added, “I’d rather have Wally’s book than not have it, because even with the errors it’s important that this field be written about intelligently.”

Nielsen wrote that the 70-year history of the Rockefeller Foundation, the nation’s seventh largest with assets of $1 billion, makes it “without question the pre-eminent large American foundation.”

But Nielsen argues that the Rockefeller Foundation’s luster has dulled in the past dozen years, first under the late Dr. John H. Knowles and now under President Richard Lyman, the former president of Stanford University. Nielsen criticizes Lyman for “wasting” four years on an internal review that produced no substantive changes or improvements, but did show the staff’s “sluggishness and lack of creativity” under Lyman.

Nielsen describes Lyman as an “incrementalist” who has not created vital new programs and suggests the Rockefeller Foundation’s hope for improvement lies with its trustees.

“What I read him saying about me is I changed some of the administrative mess, changed some people without (creating) a storm and that I haven’t done anything except clean it up,” Lyman said. “I think that’s an unfair reading.”

Major New Policy

Lyman agreed, however, that “we could have moved faster than we did,” but added that within a few months a trustee task force will unveil major new policy initiatives regarding the Rockefeller Foundation’s extensive Third World programs in health, agriculture and population.

Much like Bundy, Lyman said Nielsen “has to be taken seriously because he is the only one writing readable essays in this field . . . but his criteria are never really consistent and he praises one foundation for things he damns in another.”

In his 1972 book, “The Big Foundations,” Nielsen called the James Irvine Foundation, with offices in San Francisco and Newport Beach and assets of $300 million, “one of the four warts on the face of philanthropy.” He detailed how its directors manipulated the foundation to control development of the Irvine Ranch, which Nielsen calls “probably the prime piece of undeveloped real estate in the United States.”

In “The Golden Donors,” Nielsen said “one cannot dignify the grants of the Irvine Foundation (before 1972) as constituting a program reflecting a strategy or even a decipherable concept of philanthropy.”

But today, Nielsen writes, the Irvine Foundation, the nation’s 24th largest, is moving “slowly and cautiously” in the direction of “more problem-oriented and creative grant making.” He singled out for praise the Irvine Foundation’s experimental program matching gifts from recent alumni of California colleges and universities in the hopes that it will cause them to give more in the future as their incomes rise.

Ken Cuthbertson, the Irvine Foundation president, said he was “most pleased” with Nielsen’s latest judgment. Cuthbertson said he told Nielsen during an interview that his initial assessment was “unduly harsh,” but acknowledged that there had been “improvements, including being open to applicants for support.”

Nielsen, during a series of interviews with The Times in New York and Los Angeles, said he now rates “the Irvine Foundation a respectable, professional, Grade B foundation.”

Nielsen gave a slightly better grade, B+, to the Henry J. Kaiser Family Foundation in Menlo Park, the nation’s 32nd largest with $275 million in assets. He said the foundation has developed a solid record in its specialty area, health care.

High Praise for Hilton

The Conrad N. Hilton Foundation in Century City got high praise from Nielsen for the quality of its staff, notably Terry W. McAdam, the vice president for program. But Nielsen said the continuing legal dispute between the foundation and Barron Hilton, the donor’s son, over how much of the donor’s estate will eventually go to the foundation has created serious problems. It is believed the ultimate value of the Hilton Foundation could be as low as $300 million or as high as $700 million, depending on how the current legal fight is resolved.

“Old Hilton was a genuinely charitable man, unlike most of these other donors in my book, and he had a genuine deep interest in his fellow man,” Nielsen said. “But the tangle of interests may immobilize the foundation.”

Nielsen praised the $275-million Weingart Foundation in Los Angeles, the nation’s 29th largest, for being the only major foundation devoted to “the poorest of the poor.” He said its Skid Row programs have encouraged other foundations, including the Edna McConnell Clark Foundation in New York, to take an interest in the poor and powerless.

Emphasis Shift

But Nielsen said he is concerned that “as the established health, educational, and cultural institutions of Los Angeles develop their various strategies” for getting to the Weingart trustees, the foundation may shift its emphasis away from the poor and powerless.

Morris A. Densmore, the Weingart Foundation president, replied that the foundation “is not necessarily planning” any shift in its grant-making programs away from the poor.

The $575-million William and Flora Hewlett Foundation in Menlo Park, 10th largest in the nation and largest in California, earned a glowing review from Nielsen for the “cleanest and most respectable beginning” of any big foundation and for hiring “the very respected educator” Roger Heyns as its president.

Nielsen said the Hewlett Foundation’s “giving to mainline, major Establishment institutions on the theory that their maintenance is essential to society is certainly not reformist or socially activist the way big foundations like Ford and Carnegie have been, but its choices show it is an honorable, competent Establishment foundation.”

Nielsen said he has found that “donors are great businessmen and wealth accumulators, but as philanthropists I’ve found that most are indifferent about purpose while they are enormously careful about the tax aspects of setting up their foundations.

Small-Minded Ideas

“The result is huge amounts of money are spent on small-minded and conventional ideas.

“You can’t legislate them into creativity and into a sensitivity about social problems,” Nielsen said. Further, foundations are insulated from the kinds of pressures to perform faced by business executives, who must satisfy stockholders and banks, and by politicians, who must please voters.

“The fundamental problem is that foundations exist in a cocoon and can go to sleep for years and years and years. And of course anyone who gets a grant from them has only wonderful things to say about them, usually,” Nielsen said.

Nielsen said he believes the most effective means to awaken foundations and improve them is through doing what he does, writing about their conduct so the public can judge their performance.