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Overview
In Entrusted, David H. Smith offers some ideas and raises some issues that may put trusteeship into perspective. The main idea presented in these pages is that trustees should be reflective, that the board should be a community of inquiry, more precisely, a community of interpretation. And, because the trustee’s historically and currently important role has been little studied by moralists, philosophers, or theologians, moral issues associated with nonprofit governance have fallen into the cracks. This book serves to suggest the need for academically sophisticated discussions of the moral parameters of trusteeship, studies that will go beyond and improve on this attempt.
“Entrusted provides a much-needed contribution to the literature on ethics in the healthcare arena.” —Health Progress
“A splendid and invaluable book, one every trustee with an active conscience would want to read and one every trustee with a dormant conscience ought to read.” —Richard Chait, Center for Higher Education Governance and Leadership
“[Smith’s] contribution breaks some new and difficult ground by helping us to think beyond the routine and mundane dimensions of trusteeship.” —Academe
“Essential reading for trustees.” —Ethics
“Entrusted should be required reading for trustees of any not-for-profit.” —Advancing Philanthropy
Product Details
| ISBN-13: | 9780253113412 |
|---|---|
| Publisher: | Indiana University Press |
| Publication date: | 12/22/2021 |
| Series: | Philanthropic and Nonprofit Studies |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 140 |
| File size: | 458 KB |
| Age Range: | 18 Years |
About the Author
DAVID H.SMITH is the Director of the Poynter Center for the Study of Ethics and American Institutions and Professor of Religious Studies at Indiana University. He is the author of Health and Medicine in the Anglican Tradition: Conscience, Community, and Compromise.
Read an Excerpt
Entrusted
The Moral Responsibilities of Trusteeship
By David H. Smith
Indiana University Press
Copyright © 1995 David H. SmithAll rights reserved.
ISBN: 978-0-253-11341-2
CHAPTER 1
THE MORAL CORE OF TRUSTEESHIP
The role of trustees in the nonprofit sector has been studied at some length in recent years. Most of the extant writing adopts either a social science or a historical approach, rather than attempting to define desirable ends or goals or purposes for trusteeship.
My focus here will be on the moral aspects of trusteeship. The territory is new; I want to open a conversation by advancing hypotheses for discussion. I will begin by stating a case for trusteeship on moral grounds, and I will then try to defend it from one of the most serious moral criticisms raised against it: that it is undemocratic and paternalistic. I will conclude by specifying what I understand to be the primary moral responsibilities of trustees.
I am primarily concerned with trusteeship in nonprofit organizations, by which I mean organizations that observe a "nondistribution constraint" that "prohibits the distribution of residual earnings to individuals who exercise control over the firm." In other words, a nonprofit organization does not have shareholders who profit from its success.
Boards of trustees are found in many other kinds of institutions. For example, public agencies such as school systems have governing boards, as do profit-making corporations. Sometimes the title "directors" is substituted for "trustees," but the different names obscure great similarity of function. The distinctions between profit and nonprofit, public and private can be greatly exaggerated. In a series of studies, Salamon and associates have clearly shown the great dependence of the nonprofit sector on public funds. Further, the problems of management of, or the role of employees in, a large nonprofit organization may be indistinguishable from those in the private sector. It is a great mistake to romanticize or idealize the nonprofit world.
Thus, trusteeship is not confined to the so-called third sector — the part of our society differentiated from government, on the one hand, and profit-making organizations, on the other. Many of the principles I discuss in this book may be applicable to the situation of trustees in other kinds of institutions, but I do not claim such generalizability. Indeed, I will argue that the moral duties of trustees of nonprofit institutions derive from the unique structure of their relationships with beneficiaries and founders.
It is striking that our society has chosen to meet many social needs through institutions in which considerable governing authority lies with trustees. Numerous services provided by nonprofit organizations in the United States are provided by government agencies or established churches in other countries. American history and polity have led us to take a distinctive course. The existence of an active and vibrant third sector signals our awareness that we have communal obligations extending beyond the current reach of government, but it also — if indirectly — signals our unwillingness to use the taxing power to pay for them. In fact, the lack of serious thought about the moral authority and role of trustees reflects our ongoing ambivalence about government and authority in general.
Trusteeship as a form of relationship arose in Roman law and has been refined in England and America. The motives for its development have always been twofold. Positively, the arrangement serves a desire to accomplish some purpose — protection of an individual or property, or support for a public good (religious devotion, education, or health care) through creation of institutions such as monasteries, schools, or hospitals. Negatively, trusteeship reflects an attempt to ensure that power and property do not pass into the hands of the state. For centuries, institutions controlled by trustees have constituted a system of tax avoidance as well as a mechanism to support private action for the public good. In fact, a significant fraction of the legislation that controls trustees is designed to combine an incentive to work for the public good with a mechanism for avoiding the payment of taxes.
I will argue that the responsibilities of trustees of nonprofit organizations differ from those of trustees of other organizations. I propose three principles that should guide their work — the fiduciary principle, the common good principle, and the obligation to act as a community of interpretation.
The Fiduciary Principle
Trusteeship is a special kind of moral responsibility, distinguished from some other fiduciary duties by the fact that it is triadic. In its simplest form, it comprises an entruster, a trustee, and a beneficiary. The entruster sets up the arrangement by formulating a purpose and transferring power to the trustee, who then acts on behalf of the entruster for the benefit of the beneficiary. Thus, trusteeship is not a simple two-party fiduciary relationship between two individuals: professional and client, man and woman. In its tripartite formulation, it more closely resembles the relationship between parents whose love for each other leads to a bond with their children, or a religious ethic in which duties to other persons are dependent on a prior relationship with God. The trustee's actions for the beneficiary, like those of a spouse or a disciple, are always constrained in some way by a prior relationship or person — by the will of the founder or by the purpose for which the organization was created.
I will call the idea that trustees must begin with their special relationship to person or purpose the fiduciary principle. The trustee form of governance is defined by loyalty to the purpose for which the organization was created. In the simplest form of trusteeship, this loyalty is personalized as identification with the particular objectives of the donor or founders. It is a conservative principle in the sense that it inevitably leads to concern with the history of the organization, which should become what Bellah and colleagues call a "community of memory."
Moreover, the fiduciary principle establishes the organization's own particularity, slant, or vision. An unusual and limiting case for this principle is presented by the founding board; another arises when the founding purpose has been accomplished or clearly has lost its significance or value. In some cases the founding may involve no specification of purpose whatsoever. John D. MacArthur is said to have told the first trustees of his foundation: "I figured out how to make it. You figure out how to spend it." In these situations, specification will have to come from the board, which becomes, in essence, the founder.
The pattern is clearest if we imagine an individual who wants to do something that will benefit others. In a free society, people assume the right to make more or less autonomous decisions about commitments of time, energy, and money. However, an individual's or a group's outreach is confined not only by obvious limitations of power, intelligence, and ability but also by the natural life span. Many of the causes in which persons want to invest themselves — education, health, justice, the relief of want — are not to be won in a lifetime, if ever. Indeed, some of these causes seem to be part of the ongoing needs of all peoples and societies.
Suppose that I want to do something about education or health care and that I want to have an impact that continues after I am gone. I know that I will not be around to make decisions forever, and I also know that someone must direct choices about policy and personnel if my cause is to prosper. Thus, for a long-range effect, I must designate an individual or a series of individuals to act on my behalf. Moreover, if the particularity of my vision is to be respected — if connection with my wishes is to be preserved — these individuals must have an essential fiduciary duty to my objectives. Unless I have the ability to empower a group of trustees, I will have three choices: personal, private consumption; a one-time gift to persons or individuals in need; or public control of my resources after my death.
Even though the fiduciary principle is well established in legal precedent and historical experience, it is possible to argue that individuals' power to affect society should end with their deaths. It is logically possible to design a society in which the hand of the past is powerless; we could confiscate all of an individual's amassed wealth or resources at the time of death. In effect, a state with that policy would be telling its citizens: "Use up what you have; pass on to your heirs whatever you can find a way to shelter; the state — on behalf of the public — reserves the right to determine the utilization of your residual wealth through normal governmental allocation processes." Notice that a society so conceived would give individuals powerful incentives for personal and family consumption. The simple pattern of trusteeship in which a specific donor empowers trustees to manage resources after his or her death, therefore, has a kind of prima facie credibility from the viewpoint of individual freedom and social utility.
This simple model of trusteeship is no abstraction. We see it in the establishment of foundations and colleges, in sponsored hospitals and charities. However, trusteeship also exists in many other complex and important forms. In some cases, the "entruster" may be a group, and its members may have no money but "only" a sense of mission, as when people band together to form a community service organization. In many self-help organizations and small nonprofits, it may be impossible to distinguish a board from founders, managers, or service providers.
What these groups have in common with the simple model is a sense of organizational dedication to providing a good to needy persons. The fact that this dedication stems from a group, or that members of the group may themselves be beneficiaries, is of secondary importance. We have an identifiable form of trusteeship whenever a cause or mission defines a group's identity so that we can speak of a duty to beneficiaries that is created and constrained by the organization's sense of purpose or the cause it exists to serve.
On these terms, members of the board of directors of a business corporation are trustees with special fiduciary duties to corporate stockholders. If we grant that they also have duties to stakeholders (e.g., employees, residents of the communities in which the firm operates, or consumers), the differences between their role and that of trustees in the nonprofit sector may diminish. Nevertheless, they have an additional duty to make money for investors. Thus, their form of trusteeship differs from that of my main concern.
Another contrast worth noting is that between a trustee and an elected representative. Some writers on politics suggest that a representative (a member of Congress, for example) should be thought of as a trustee in the sense that her or his duties to constituents are clearly limited by the representative's own judgments about what is in the best interest of the state. This conception reflects Edmund Burke's notion of representation, and it remains helpful, but it leaves out of account the responsibilities of elected representatives to take special cognizance of the interests — indeed, the preferences — of their constituents. Those responsibilities are better captured when we think of the representative as a (sometimes instructed) delegate. I contend that trustees must consult the needs of beneficiaries. I don't want to argue for a radical dichotomy between governmental and philanthropic relationships, but there is a difference in priority: A delegate cares for common purpose because of duties to constituents; a trustee cares for beneficiaries' needs because of commitment to the cause or the trust. Trustees are not instructed delegates of their beneficiaries.
Debate over the balance between these principles is as old as the Republic. The issue was joined and partly resolved in 1819 in the U.S. Supreme Court decision in Dartmouth College v. Woodward. In that case, the Court dealt with a question of who should govern or control a private university. The controversy over this point was not, in itself, novel. Struggles over who should control a university date back to colonial times in America and at least to the thirteenth century in Europe. Church and state, and various factions within those entities, struggled for control over universities in medieval Europe. Distinctive ways of reconciling these conflicts were worked out at Calvin's Academy in Geneva, at Oxford and Cambridge, and in the various colonial colleges and universities before the American Revolution.
The Dartmouth dispute began in 1815 when the Federalist trustees fired John Wheelock, the president of the college. Wheelock had wanted to reform religious worship and instruction along lines supported by the Jeffersonians. When the Jeffersonians won a majority in the New Hampshire legislature in 1816, they and Governor Plumer felt they had a mandate from the people of the state. They passed legislation designed to ensure state control of the college. Trustee governance, Plumer and Jefferson thought, should not be allowed to stand in the way of the common good. They meant to defend Wheelock, who they regarded as a social reformer, against a group of trustees who resisted change (in my terms, to insist on a common good or social justice principle as dominant over the fiduciary principle). Jefferson wrote:
The idea that institutions established for the use of the nation cannot be touched nor modified, even to make them answer their end, because of rights gratuitously supposed in those employed to manage them in trust for the public, may perhaps be a salutary provision against the abuses of a monarch, but is most absurd against the nation itself.
But the Federalist United States Supreme Court "decided the question of Dartmouth College's nature as a private or public corporation by looking to the private source of its original funds rather than to the public purpose for which it was established."
Dartmouth College v. Woodward resolved the conflict between common good and fiduciary principles by suggesting that social space must be left for the latter. The college could not be forced to become strictly public, acting according to legislative or majority perceptions of need. The college's own perceptions and vision rightly were to have a determinative role. But the case tells us only what the college had a right to do, not what it should have done. Were the Jeffersonians right about the proper forms of religious worship in the college? Had the trustees worked out a consistent statement of the college's mission going back to its original objective as a missionary school for Indians? Boards of trustees have the right to make these choices, and they must take the responsibility for making them. It is clear that they have to think about something in addition to founding purpose.
The Common Good Principle
My analysis so far suggests that a key aspect of a trustee's role is loyalty to the cause or purpose for which the organization exists. Actually, I have oversimplified the issue of purpose in several ways. One very important oversimplification arises from the fact that a given founder or organization may appropriately have more than one purpose. Indeed, the only way in which purpose may be unified may be by stating it in such general terms that it becomes vacuous and uncontroversial. Hidden under the platitude are multiple, sometimes conflicting purposes. My whole point is that trustees are responsible for ensuring that these issues get sorted out — and conflicts resolved — in a responsible way. A large portion of this book will be devoted to commentary on issues that arise as a board attempts to refine, interpret, and specify purposes.
First, however, it is important to address a second issue raised by the fact of differences between organizational purposes and other ends or goals cherished by the wider society: Is one purpose as good as another? What constraints are imposed on the ends for which trustees may act and on the means they may use to attain those ends?
Broadly speaking, my answer to these questions is that only just ends may be pursued and that only just means may be used in their pursuit. Entrusted organizations are nested in the larger moral matrix of their society. That matrix may be pluralistic and incomplete, but in any given society at any given time the concept of justice is not vacuous. Although we can easily find hard cases about which we disagree, we can meaningfully use words like fairness and honesty. The fiduciary principle does not exempt trustees from these ordinary moral constraints or somehow lift trustees above the basic requirements of social morality.
(Continues...)
Excerpted from Entrusted by David H. Smith. Copyright © 1995 David H. Smith. Excerpted by permission of Indiana University Press.
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Table of Contents
Preface
Part I: Why Trustees?
1. The Moral Core of Trusteeship
2. Two Major Objections
3. An Illustration: Trustees and Football
Part II: Specifying Vocation amid Controversy
4. When in Doubt: Problems of Specification
5. Conflicting Basic Duties
Part III: Duty and Character
6. Processes and Procedures
7. The Virtues of a Trustee
Notes
Index