Charity Trusts and the Shareholder vs. Stakeholder Debate

By Stern, Michael J. | Journal of Corporation Law, Summer 2018 | Go to article overview

Charity Trusts and the Shareholder vs. Stakeholder Debate


Stern, Michael J., Journal of Corporation Law


I. Introduction

In recent years, charity trusts have grown in both donations received and the benefits bestowed.1 This is also accompanied by the recent trend of the extremely wealthy to pledge the vast majority of their wealth to charity upon their death.2 This increased philanthropy has obvious benefits; however, it brings a concern about how the charity trusts should operate. When the charity trusts are using their new wealth, they are faced with the decision of following a shareholder or stakeholder approach. As it turns out, this decision may not be left to charity trusts.

In 2002, the Hershey Trust-the charitable trust associated with Hershey Foods- attempted to sell its majority stake in Hershey Foods. The Pennsylvania government intervened and decided that the Hershey Trust could not sell its shares in Hershey Food due to the potential effect on the community.3 Situations like these present the question of whether state governments should be allowed to interfere with the decisions of other expansive charity trusts-such as the Bill & Melinda Gates Foundation-and dictate what type of approach is followed as charity trusts continue to grow. This Note seeks to address this question.

To accomplish this task, Part II will lay out the necessary background information. This Part will cover the basics of charity trust and the history and fundamentals of the shareholder and stakeholder theories. Then, Part II will proceed to discuss some of the relevant laws governing charity trusts-both state and federal. Furthermore, it will proceed to delve into the facts and results of the 2002 Hershey Trust conundrum. Finally, Part II will set the stage for the potential conflict as charity trusts continue to grow in size.

In Part III, the benefits and disadvantages of the shareholder and stakeholder theory will be weighed and analyzed to see how these two approaches affect charity trusts and which approach would be best for charity trusts to follow. Finally, Part IV assesses how this question should be answered-either by sticking to the current path and letting the states dictate the outcome, or congress stepping in and legislating the approach for charity trusts to follow.

II. Background

This Part lays out a general background of charity trusts, the shareholder and stakeholder approach, and the general steps taken by states and Congress. It also summarizes the Hershey Trust events and the current trend of charity trusts.

A. Charity Trusts: A General Background

A charitable trust is a private foundation that devotes all unexpired interests to one or more charitable purposes.4 However, even though a charitable trust is created to fund one or more charitable purposes, the trust does not receive a tax-exempt status and is treated exactly like every other private foundation.5 The charitable purposes a trust may seek to benefit are also limited by the Internal Revenue Service (IRS) to "religious, charitable, scientific, literary, or educational purposes" and further limited by state law defining what a charitable purpose can be.6 Despite these limitations, contributions to a charity trust can generate significant income and estate tax benefits.7 For these reasons (as well as general goodwill), many wealthy individuals have set up or donated to charitable trusts because those donations "may translate into hundreds of thousands of dollars in estate and income tax savings."8 Furthermore, the general rule is that "outright gifts to charity at death are deductible without limit and reduce the taxable estate."9 For these reasons, charity trusts have begun to increase in size10 and that poses the question of whether charity trusts should follow a stakeholder or shareholder approach.

B. Background of Shareholder and Stakeholder Approach

There are two main competing theories that address how a corporation should be run: the shareholder approach and the stakeholder approach.

1. Shareholder Approach

The ideals that have shaped the shareholder theory were established over 200 years ago in Adam West's The Wealth of Nations11 The shareholder theory is primarily based on the idea that the main purpose of a business is generating profits and increasing shareholder wealth. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Charity Trusts and the Shareholder vs. Stakeholder Debate
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.