Through Multiple Generations: Rosenwald and Stern Families' Philanthropic Journey

When David Stern’s great-grandfather, Julius Rosenwald, established the Rosenwald Fund in 1917, he set a philanthropic precedent for the family. Rosenwald, who was instrumental in shaping the success of Sears and Roebuck Company, focused on philanthropy after resigning as president from Sears. When the Rosenwald Fund was initiated, he made the decision to use all his funds for philanthropic purposes, and to spend out the fund in 25 years. “He believed that foundations should not exist in perpetuity,” explains David Stern. “-- That all assets should be spent in one generation.  He believed philanthropic dollars should be used to bring about desired social outcomes, not to create a foundation interested in self-preservation.”

From this basis, succeeding generations would make decisions that embraced a variety of groundbreaking and creative grant-making strategies, influencing U.S. philanthropy and simultaneously facilitating social change.

The Matching Gift

Julius Rosenwald, who was committed to the education of African Americans, worked closely with Booker T. Washington to provide matching funds to pay for the construction of over 5,000 schools, shops and teachers homes for African Americans throughout the South that became known as the “Rosenwald Schools.”  According to Wikipedia, an online encyclopedia, “Together the idea-man (Washington) and the moneyman (Rosenwald) hammered out an early example of a now-common philanthropic tool: the matching gift. Over the course of his life, Rosenwald donated over $70 million dollars. In addition to the schools, he also established the Museum of Science and Industry in Chicago, which he intended to have hands-on interactive exhibits.

Training the Next Generation

After the dissolution of the Rosenwald Fund, David Stern’s grandmother, Edith Stern, established the second iteration of the family foundation, which she named the Stern Fund. Like her father’s fund, Edith Stern’s fund was established to expire after 25 years.  And the fund trustees made a number of strategic decisions that re-enforced Rosenwald’s commitment to bold social action, utilizing innovative grant-making tactics to accomplish those goals. 

Perhaps one of the most important moves by the Stern Fund was the extension of board membership to the next generation. “My recollection was that we could join the board at 16, but we all attended meetings when we were younger,” says David. This proved to be essential training for effective grantmaking.  Unlike many foundations, the Stern Fund had grant applicants attend the meetings and make presentations to the entire board.  There was lots of give and take, with board members asking tough questions, such as, ‘The problem you describe is enormous and we make relatively modest grants. What difference will our grant make?  Explain why our grant would not just be a pea under 127 mattresses?’  Discussions among multiple generations and with multiple grant applicants brought forth new approaches for young philanthropists to gain a deeper understanding of the issues their funding supported. 

“Of all of the lessons I learned from the Stern Fund, I would say the most important was value of conducting in-person interviews with the applicants,” says David Stern. 

"If I were to advise a new foundation, I would tell them to do this. It makes grantmaking more fun and rewarding.  Plus you get some incredibly interesting and relevant data to make your decisions. We’d enter our board meetings with one opinion based on the written proposal, and that would often change during the face-to-face meeting. Proposals in and of themselves do not let you measure the likelihood of success.”

Identifying Leaders and Leveraging Resources

In addition to new members, the Stern Fund hired David Hunter, widely recognized as the godfather of progressive socially conscious philanthropy in the United States. “My father referred to David as a ‘truffle dog,’” David Stern recounts. (In Europe, dogs have been used for centuries to help find truffles or gourmet mushrooms.) “Hunter would go out and discover fantastic projects. He would literally travel around the county; go into communities and say, “Who is hot here? Who are the unsung heroes? Who is doing great work?”

It was a very active approach to philanthropy, rather than waiting for proposals to come over the transom.  His aim was to find undiscovered champions for social justice who did not yet have enough credibility to be considered by the major foundations.  I remember him asking, “How can we use our assets to open the door for larger funders?  If we can plant the Stern Fund flag on some of these nascent groups, they will be able to use those grants to illustrate foundation support and get in the door of more traditional foundations.” While Hunter was executive director, the Stern Fund supported projects focused on government accountability, corporate responsibility, grassroots organizing, and redistribution of wealth.

Establishing Philanthropic “Discipline”

In the early 1980s, after the Stern Fund dissolved, Phil Stern turned his attention to his own personal foundation, the Philip M. Stern Family Fund.  “He very much wanted to continue the philanthropic traditions of our family,” David reports, “He encouraged all of us kids to make generous year-end contributions to the PMS Family Fund, and then designate various charities throughout the next year.  It was a discipline – by depositing an amount at the end of the calendar year, it forced us to commit to making charitable contributions during the following year.  In addition, he began to look for opportunities for individual family members to combine their contributions to fund a project and make a larger impact.”

During his life, Phil Stern developed a set of philanthropic principles that guided his giving.  David Stern recalled several of them:

1. Bet on “hot people.”  Hot people are the ones who make change, more than the organizations where they work.  Do not make decisions based on grant proposals.  Meet the people and assess their experiences and abilities, not their credentials.

2. Take on ‘David and Goliath’ struggles. While the odds look impossibly long, a well-aimed stone can bring down the biggest giant.  David Stern’s favorite example of this principle was his father’s decision to give independent journalist Seymour Hersh a $500 grant to fly to Vietnam and investigate the My Lai massacre, committed by US soldiers on unarmed Vietnamese civilians during the Vietnam War. Time, Life and Newsweek magazines picked up the story.

3. Look for opportunities where a small grant can make a big difference.  He preferred to fund smaller nonprofits where his grant would make up a substantial part of the grantee’s budget.  He would also look for strategic moments where a small grant could catapult an organization to success on an issue.

4. Aim for systemic reform versus band-aids. 

5. Use matching gifts to leverage support.  For the organizations where he gave ongoing annual support, he would develop challenges for them to meet in order to get his support.

6. Don’t be overly rigid about “guidelines.”  He was critical of foundations that would turn away outstanding people and projects because they did not “fit the guidelines.”  He urged more flexibility with at least a portion of the foundation’s assets.

7. Spend out your charitable dollars – fast! Don’t waste charitable dollars on administration. 

Philip M. Stern used his foundation to experiment in philanthropy, using these criteria.  Upon his death in 1992, he donated the residual of his estate, roughly $3 million, to create the next iteration of the family foundation – the Stern Family Fund. 

Developing Leaders and Investing in Strategic Opportunities

When David and the other directors of the Stern Family Fund sat down to determine how they would spend $400,000 in grant-making dollars a year, they looked at Phil Stern’s criteria, and they settled on two programs that guided the foundation until 2005, when it ended its grantmaking. 

First, they established Public Interest Pioneers, a grant-making program that awarded $200,000 in seed grants to spark the creation of new organizations or the development of projects that would take organizations in new directions. “Within our public experience, we had noticed that there was often a lot of pent up creativity within senior people in non-profit organizations,” David Stern recalls. “They often had ideas that they wanted to try, but didn’t have the time or resources to pursue those ideas. We felt there was much innovation to be unleashed by supporting these people and their ideas.”

One of the recipients was Greg LaRoy, the founder of Good Jobs First, a national policy resource center that promotes corporate and government accountability in economic development. Explaining, Stern says, “He believes that if a business promises to create jobs in exchange for tax breaks, they have to create those jobs. If they don’t, they should be held accountable and repay the tax break.” An advocate for “claw back provisions,” LaRoy has been dubbed “God’s witness to corporate welfare.”

Two other public interest pioneers included Ami Dar, the founder of Idealist.org, and Joe Lovett, the founder of the Appalachian Center for the Economy and the Environment, two organizations that have thrived after the Stern Family Fund investment.

In addition, the Stern Family Fund directors set aside $200,000 a year to make Strategic Opportunity Grants, which were $15,000-$25,000 grants awarded at a political moment or critical juncture in an organization’s life. “For example, when college students were organizing against sweatshops in Asia, or there was an urgent effort to challenge an FCC ruling that allowed big mergers of media companies – those were the kinds of efforts where we would target our strategic support funding,” explains David Stern.  “We also funded in one area where my father was very active – campaign finance reform.” 

Supporting the Development of Professionals

While there are currently no immediate plans to establish a new family foundation, David Stern finds opportunities to employ innovative philanthropic strategies he has tested over time. As the executive director of Equal Justice Works, a non-profit organization that works to mobilize law students and lawyers to work on behalf of underserved communities and causes, Stern used the prototype for the Public Interest Pioneers program to create a post-graduate fellowship program for lawyers that is now the largest in the country with 100 lawyers in the field.

In addition, he looks for opportunities to make systemic reform.  Equal Justice Works publishes with Newsweek.com a free online guide to law school public service programs so that pre-law students could make better choices than with the U.S. News rankings.  Given that so many students enter law school with a desire to do serve the public, David’s hope is that the guide will push schools to invest more in public interest programs.  “Our belief is: if you can create a market force, things will change,” he adds.

The Rosenwald and Stern legacy lives on, within a new generation and with new causes, rooted to the guiding principles first established with David Stern’s great-grandfather, Julius Rosenwald.