MICHIGAN ATTORNEY GENERAL OVERSTEPS HIS AUTHORITY: FORD FOUNDATION HAS NO OBLIGATION TO THE STATE OF MICHIGAN OR ITS RESIDENTS

Once again, a state attorney general does not understand his role in regulating the charitable sector. This time it is Michigan Attorney General Mike Cox, who is investigating the Ford Foundation. His beef: The Ford Foundation has not been making enough...

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grants to Michigan-based charities. Well guess what, AG Cox has no basis for his position. 

Here is the “purposes” clause from the Ford Foundation’s articles of incorporation:

ARTICLE II

The purpose or purposes for which the corporation is organized are:

 A. To receive and administer funds for scientific, educational, and charitable purposes, all for the public welfare, and for no other purposes, and to that end to take and hold, by bequest, devise, gift, purchase, or lease, either absolutely or in trust for such objects and purposes or any of them, any property, real, personal, or mixed, without limitation as to amount or value, except such limitations, if any, as may be imposed by law; to sell, convey, and dispose of any such property and to invest and re-invest the principal and income thereof in such property, real, personal or mixed, including, without limitation, securities (which term for the purposes of this Article II, includes, without limitation, any shares of stock, bonds, debentures, notes, mortgages and other obligations or evidences of ownership of every kind and nature, any certificates, receipts or other instruments representing participations or undivided interests therein or with respect thereto, rights to receive, purchase or subscribe for the same, and any other rights or interests therein or in any property or assets), in, of, issued or created by, any person, firm, partnership, association, corporation, joint venture, government or subdivision, agency or instrumentality thereof, or any other legal entity of any kind and nature, domestic or foreign, and to deal with and expend the principal and income of this corporation for any of the before mentioned objects and purposes, without limitation, except such limitations, if any, as may be contained in the instrument under which such property is received; to receive any property, real, personal, or mixed, in trust, under the terms of any will, deed of trust, or other trust instrument for the foregoing purposes or any of them (but for no other purposes), and in administering the same to carry out the directions and exercise the powers contained in the trust instrument under which the property is received, including the expenditure of the principal, as well as the income, for one or more of such purposes, if authorized or directed in the trust instrument under which it is received; to receive, take title to, hold, and use the proceeds and income of securities, but only for the foregoing purposes, or some of them; and, in general, to exercise any, all and every power for which a nonprofit corporation known as a Foundation, organized under the provisions of the Michigan Nonprofit Corporation Act, as from time to time amended, for scientific, educational, and charitable purposes, all for the public welfare, can be authorized to exercise, but not any other power. No substantial part of the activities of this corporation shall be carrying on propaganda, or otherwise attempting to influence legislation, and this corporation shall not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office.

Do you see anything in the quoted passage that says that one of the charitable purposes of the Ford Foundation is to make grants to Michigan-based charities?  Nope.

The fine citizens of Michigan long ago may have had expectations that a Michigan-based company (Ford Motor Company) might make contributions to local charitable organizations. However, the Ford Foundation is not Ford Motor Company. The Ford Foundation is a private pool of capital that is only obligated under Michigan law to adhere to the purposes clause in its article of incorporation.

To put this all in perspective, let’s change the facts slightly. Suppose the Ford Foundation had been created last year, funded by a Michigan-based family. If the family started withdrawing money for its own benefit, the Michigan Attorney General would have every reason and duty to intervene. That’s because once the family gave the money to a charitable foundation, the money no longer belonged to the family. Similarly, just because the money may have been earned in Michigan does not mean that the money must be used for Michigan-based purposes. A charitable foundation is a freestanding entity. Its basic obligation under the law is to adhere to the purposes clause in its articles of incorporation. 

Unfortunately, too many state attorneys general believe that their jurisdiction over charitable foundations means that the money held by the foundation belongs to the public, with the result that the attorney general somehow has the right to direct how the money or assets are used. That is position that the Illinois Attorney General took in the Terra Museum case (protecting the interests of the People of Illinois in the museum’s paintings). That is also the position taken by the Pennsylvania Attorney General in the Hershey Trust case (the trust could not divest itself of Hershey stock because that would jeopardize jobs in the community). In that case, it was recently estimated that the Pennsylvania Attorney General destroyed over $1 billion in charitable value when it successfully precluded the trustees from taking the prudent step of diversifying the trust’s assets). Good job Mr. Pennsylvania Attorney General.  How many local jobs would have been created had the Hershey Trust had over a billion dollars more to invest in community?

The only basis for intervention by an attorney general is if the the charitable organization is not fulfilling its purposes clause.  At that point, the attorney general is intervening because under the law, the attorney general is assigned the role of assuring that the charitable organization is acting in furtherance of its purposes clause.  The attorney general has that role because the law generally denies everyone else standing to intervene.  However, there is a distinction between suing a charity that has deviated from its stated purposes and re-interpreting what was written as a broad purposes clauses to meet your political needs.  The assets held by the Ford Foundation do not belong to the State of Michigan or its taxpayers. 

In essence, the Michigan Attorney General is acting no differently in this matter than judges who overstep their bounds in deciding cases.  The appellate judge is not a legislative body.  His job is to assess what the statutory language means, not to impose his view of public policy.  If the Ford Foundation's actions are consistent with its purposes clause, the Michigan Attorney General has no authority to tell the Ford Foundation what to do.  AG Cox may not like how the Ford Foundation is spending its money.  But as long as it is acting consistently with its purposes clause, tough.

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