About the history
From a historical perspective, German foundations represent one of the great continuities in a country characterised by discontinuities. Famous churches and monasteries are visible signs of early foundation activity. The Bürgerspitalstiftung in Wemding, Bavaria, which still exists today, dates back to the 10th century. By the 13th century at the latest, as Roman law began to regain a foothold in Germany, the social structure changed and a significant process of urbanisation set in, leading to the establishment of numerous foundations, all of which have survived the vicissitudes of history. The Bürgerspital zum Hl. Geist Foundation in Würzburg, founded in 1316, is just one of around 250 examples of foundations that are more than 500 years old and still exist today. However, the Fuggerei social foundation in Augsburg, dating from 1521, is often regarded as the oldest German foundation. The fact that this is not correct does not diminish its significance. In any case, it is the oldest social housing estate in Germany.
The fact that the foundation is rooted in history clearly makes it particularly attractive at times when social orders are collapsing or changing. This is also linked to the fact that the establishment of foundations has often been seen as a means of social integration. This applies, for example, to the period following the Thirty Years’ War (the most prominent example being the Francke Foundations in Halle, established in 1698), to the period following the end of the Holy Roman Empire (e.g. the Städel Art Institute Foundation, 1815) or to the ‘Gründerzeit’ (the Carl Zeiss Foundation, 1889). However, during the times of hardship following the First and Second World Wars, hardly any new foundations were established in Germany. On the contrary: the hyperinflation of 1923, the Nazi regime, the ‘Zero Hour’ of 1945 and the communist government in the GDR brought many existing foundations to a standstill, whether due to the depletion of their assets, expropriation or other reasons.
It was only very gradually that foundations began to be established in significant numbers again – from the 1950s in West Germany and from the 1990s in East Germany. The tentative reforms to foundation law (from 2000 onwards) and the associated broader public debate on the purpose and value of foundations, combined with the sharp rise in privately held assets and the resurgence of civic engagement, have meant in the 2000s, roughly as many foundations were established in a single year as had been established over a decade 20 years earlier. However, since the financial crisis of 2007, the number of new foundations has stagnated, albeit at a high level. For some time now, however, companies, clubs, associations and local authorities have joined private individuals as founders; they are driven less by an intrinsic desire to make investment-style donations than by the appeal of the structure itself for their strategic considerations. On the other hand, more and more donors, particularly younger ones, are seeking new ways to organise their gifts to society. There are now numerous options available for this. Furthermore, the mega-foundations set up by billionaires such as Bill Gates have opened up entirely new dimensions for the foundation sector, but have also sparked debates about the role of foundations in a democratic society.
The Foundation’s objectives and their implementation
Every foundation begins with an idea. It is this idea that drives every founder. Foundations are therefore very diverse and active in many fields. Statistically speaking, social objectives still rank first by a wide margin, followed by cultural, scientific and educational objectives. Environmental and nature conservation, as well as international understanding, are relatively new additions to this list.
For centuries, there have been four basic ways of fulfilling a foundation’s purpose. The image of the foundation as an income-generating capital fund, whose returns benefit the work of third parties – a concept derived from US foundation practice – therefore has nothing in common with the reality of foundations in Germany. In fact, a large proportion of foundations carry out their duties purely as asset-holding foundations. This may seem surprising at first, and indeed applies only to a small proportion of the more than 20,000 German foundations commonly referred to today. This analysis does not take into account the estimated 100,000 church and ecclesiastical benefice foundations, of which at least the former – around 50,000 – have no other function than to act as the legal owner of a (Catholic or Protestant) church building. The active phase of these foundations’ operations almost always predates the 18th century – in some cases going back much further – and was generally concluded with the construction of the church, for which the land, building materials and funds had been donated. Nevertheless, they fulfil an important role. They largely safeguard this property against misuse or sale – a role that is also of interest to other types of foundations. Incidentally, the total number of foundations in Germany must also be supplemented by the approximately 40,000 foundations without legal personality or trust-based foundations, as well as a relatively small number of foundations organised as limited companies.
Other foundations, both old and more recent, traditionally fulfil their purpose through what are known as ‘institutions’. Numerous social institutions are, in form, foundations. Names such as ‘hospital foundation’ or ‘infirmary foundation’ still point to early establishments of this kind; the Foundation of the Hospital of the Holy Spirit in Berlin-Spandau (founded in 1244) is an example of this. In the 19th century, this form experienced a further heyday, particularly in the social sector. The Evangelical Neuerkerode Foundation (1868) and the Liebenau Foundation (1870) bear witness to this. Whilst today, on the one hand, the activities of such operational foundations also include the sponsorship of projects, on the other hand, funding foundations have also taken on the role of sponsoring organisations, such as the Zeit Foundation (founded in 1971) as the sponsor of the Bucerius Law School in Hamburg. In the 19th century and in the period following the Second World War, foundations were also involved in social housing, for example the Kronprinz-Rupprecht-von-Bayern Foundation in Würzburg, founded in 1949. Incidentally, operational foundations also include those that award scholarships or prizes.
Grant-making foundations form the third and best-known group. External organisations or their projects are supported through financial grants, often supplemented by non-financial, logistical or organisational assistance. If one excludes church foundations and foundations for church benefices, around two-thirds of all foundations today fulfil their purpose wholly or partly in this way. However, there are significant differences in the way they provide funding. Whilst some have already specified the beneficiary – that is, the institutional recipient of the foundation’s funds – by name in their articles of association, others invite applications or actively seek out suitable project partners themselves.
Finally, the fourth group consists of charitable foundations. These foundations are dedicated to providing financial support to individuals in need, whether for economic or other reasons. They have not lost their purpose even in the welfare state, as the applications – indeed, cries for help – received by these foundations demonstrate anew every day. The foundation set up in 1995 by Jürgen Fliege, the ‘television pastor’, is one such example.
Economic conditions
The major institutional foundations are significant social economy enterprises. Their assets generally consist almost exclusively of assets necessary for their operations; by their very nature, they derive their income almost exclusively from their activities, i.e. their services are paid for, for example, by social security providers. Although this constitutes a form of return on investment from a business perspective, it differs from generating a return on investments made for purposes other than the organisation’s core mission, as is customary for charitable foundations.
Traditionally, charitable and philanthropic foundations have fulfilled their remit, at least for the most part, from the income generated by an income-producing asset base that the founder provided either at the time of the foundation’s establishment or gradually thereafter. However, it would be wrong to assume that income-producing assets must be financial assets. Both long-established and newly formed foundations often own property, be it houses, woodland or agricultural land. This may be supplemented by works of art, shareholdings in companies, exploitable rights and much more. There are virtually no limits to the imagination here. Furthermore, contrary to rumours to the contrary, there is no fixed minimum asset requirement. Even with very modest assets, it is possible to establish a foundation, provided that the foundation’s purpose, the chosen legal form and other circumstances form a plausible basis for sustainable foundation work. Over the last 30 years, a trend has emerged whereby foundations are also active in the fundraising and donations market. The number of foundations that quite legitimately use their status as a basis for raising endowments, donations, bequests and inheritances is on the rise. Since the 1990s, this group has also included so-called community and civic foundations. On the other hand, of course, it is not necessary to set up a new foundation for every idea.
The organisation of a foundation
For an organisation such as a foundation to survive in the long term, it must be competently represented, managed and administered. How this is achieved depends on the size of the foundation, the nature of its objectives, the composition of its assets and other factors. Traditionally, therefore, founders have been able to decide whether to set up their own organisation solely for this purpose or to entrust their foundation to an existing one. The former option has given rise to the ownerless foundation with legal personality, whilst the latter has resulted in the foundation without legal personality, or fiduciary foundation, which is closely related to the Anglo-Saxon trust. The choice of legal form has implications for the formal management structure and the responsibilities of the trustees, but less so for the practical administration and operations.
As ever, members of foundation boards and executive committees continue to work for the foundation predominantly on a voluntary basis, even though they operate in a somewhat business-like manner. Smaller foundations, on the other hand, are increasingly entrusting day-to-day operations to external specialists. Whereas in the past it was primarily municipal, church and university administrations that managed foundations over the course of centuries – though not always optimally – today this role is fulfilled by specialist organisations, as well as banks, law firms and tax consultancy firms. It is, however, essential that the foundation’s administrators possess the necessary expertise and a certain degree of commitment to the cause when fulfilling the foundation’s purpose.
The legal framework
Federal and state foundation law, and tax law in particular, impose a number of regulations on founders and foundations, including some that are open to interpretation and discretion on the part of the relevant authorities. Nevertheless, the nature of establishing a foundation as an act of self-regulation has been preserved since the early Middle Ages. Neither model nor standard statutes, nor any other objections, need always be accepted. After all, foundations are, by their very nature, tailor-made. Each founder must exercise their creative judgement to fully exploit the advantages of this instrument for charitable purposes. Thorough conceptual preparation, with the assistance of an adviser, and committed, professional management are essential.
Closing remarks
In the past, foundations have time and again played a decisive role in shaping the agenda for social change, practical improvements and reforms. The welfare state has, in this respect, caused them to lose some of their vigour. Many have become mere instruments of state policy on welfare, culture, research or education. The rise of civil society as an equal sphere of action within society brings new scope for foundations – which form part of this civil society with their own specific attributes – but also new responsibilities, not least because of their exponentially growing numbers. Actively embracing this role and becoming agents of social change is the challenge they must rise to.