Governance of and by Philanthropic Foundations

Abstract

Philanthropic foundations have become increasingly important in present-day societies. In relation to governance, they represent some specific features. Like corporations, they are subject to regulation, but they differ by having neither owners nor customers. This makes the governance of foundations an important issue for study. At the same time, governance by foundations is likewise of importance. It includes the role of foundations in corporate governance based on their ownership in corporations and their role in resource allocation based on the returns of their assets. Against this background, this article addresses three research questions: (1) What are the characteristics of the governance of foundations? (2) What role do foundations play for corporate governance? (3) What role do foundations play for resource allocation? In order to contribute to answering these questions this article provides an analysis of the first centenary (1917−2017) of a major Swedish philanthropic foundation, the Knut and Alice Wallenberg Foundation. It is concluded that successful foundation governance is characterized by (1) rule compliance, (2) loyalty to the founders, and (3) legitimacy among prospective grantees. Additional conclusions are that the larger, the more concentrated, and the more long-term the asset portfolio, the more significant will be the role a foundation may play in corporate governance, and the more successful asset management and the more careful project selection, the more significant will be the role a foundation may play in resource allocation. In addition, the article demonstrates the reciprocal relationships between foundations, corporations, and grantees.