Paul Newman’s Children are Angry
Some time ago, The Wall Street Journal reported that two of Paul Newman’s children were locked in a legal dispute with the board members of the Newman’s Own Foundation.[i] Created in 2005, the foundation owns Newman’s Own Inc., the specialty food company that uses Mr. Newman’s name and likeness. The profits of the food company are accrued by the foundation, which reports it has given $600 million to charities over the last 40 years.
Mr. Newman, the famed actor and entrepreneur, died in September 2008. From the start, the profits of his salad dressing empire have been given to charities — and that practice was to continue after his demise. But who would run the foundation? Who would make the decisions and have the ability to direct grants?
The foundation appears to have been entrusted to two gentlemen, both friends and professional advisers of Mr. Newman’s.
Now, some 15 years after Mr. Newman’s death, two of his daughters have filed a suit in which they allege:
- Major conflicts of interest among board members.
- Lavish travel by the board and staff, including a personal driver for one board member.
- Last-minute changes relative to the foundation in Mr. Newman’s will just months before his death, when he was not competent.
- Violations of donor intent by abandoning some of Mr. Newman’s favorite charities and interests.
- A reduction in the funds promised to be made available for Mr. Newman’s children’s personal giving.
- A change in the methodology that calculates the company’s payments to the foundation.
In fairness, some of these charges stem from the behavior of one of the original trustees, who resigned after an internal investigation. Today, the board appears to be composed of experienced leaders.
But at least some family members remain very unhappy and feel betrayed. We presume this is not what Mr. Newman wished.
Some will see this as an issue of donor intent.[ii] That is, they point to the professionalization of the foundation and the evolution of its focus as evidence of a drift from the founder’s intention, much like the legendary case of the Ford Foundation. In our view, this critique may well have merit; we are big believers in donor intent. (And in this case, both sides may think they are the true followers of Mr. Newman’s intent.) The solution might have been to appoint family members to the board, instead of (or as well as) Mr. Newman’s professional advisers.
Yet, we also see this as an example of the fundamental difference between two different types of foundations. Is the foundation’s purpose to focus on one issue, or several issues? Or is its mission to keep the family together and provide a common philanthropic enterprise for Mr. Newman’s children and grandchildren?
In practice, it is difficult to mix these two paths. If the purpose of the foundation is to help disadvantaged youth, then the foundation will likely hire the appropriate experts and its mission may expand or change as the foundation learns more and as public policy evolves. In this case, family members may not be involved and may well be unhappy with the direction of the foundation both because they have less influence and because the foundation has changed.
If the purpose of the foundation is to provide the family with a common philanthropic enterprise, then the family should be well represented on the board and they can work together to direct the foundation’s work. In this case, the foundation might drift in new directions as the interests of the family change. Yet, at least the family members will be less likely to complain.[iii]
In the end, there is no simple solution to avoid these types of problems. Families and their lawyers may experience conflict despite the best planning. However, we find in our work with families that there are a few reliable ways to avoid much of the potential for disputes:
- Founders should write a clear, unambiguous mission statement.
- The rules for trustee succession should be documented.
- The desired lifespan of the foundation — that is, is it to be time-limited or perpetual? — should be established.
Finally, these important messages should be shared with the appropriate family members early and often.
[iii] As a caution, we should add that it is also common for one arm of the family to gain control of the family foundation, while another less-represented arm complains about the drift from the founder’s intentions.