For the first time in my history as an entrepreneur, I’m trying to help some organizations go out of business. The United States has too many “perpetual” private foundations, driven by tax rules to focus on minimum distribution requirements rather than doing the great deeds for which they were founded.

To discourage the hoarding of assets, US Tax Code penalizes private foundations if they distribute less than 5% of their previous year’s assets annually. Foundations could face an excise tax of 30-100% of the amount not distributed.

However, many foundations ask their investment managers to deliver at least 8% returns. Those who distribute the minimum turn into perpetual foundations as their assets grow. Like many businesses, they fixate on tax management and lose sight of their greater goals. They stare at the 5% minimum distribution and end up organizing around it.

“Reasonable expenses” count as part of the 5% minimum, which further lowers the bar. If “reasonable expenses” were not considered part of the minimum distribution, how much less would foundations spend on conferences and publications and consultants?

Supporters of ever-growing foundations point to the increased magnitude of gifts over time, as millions in donations turn into billions in grants. True, but who knows what the return on investment of larger distributions would have been? After all, a lot of problems can be solved, not just treated. Think of the diseases eradicated in the first half of the twentieth century by the focused efforts of Rockefeller’s foundations. Any businessperson understands the time-value of money: a dollar today is worth more than a dollar tomorrow.

For many of today’s philanthropists, results are the primary argument for higher minimum distributions. We want the greatest possible return on social investment, compounding the effects of success by driving change faster.  It’s a more entrepreneurial approach to philanthropy, from a generation that accumulated its wealth by solving problems. According to the Wall Street Journal (September 10, 2002), Atlantic Philanthropies donor Charles Feeney wanted his $4 billion endowment spent over 15 years or so. “Mr. Feeney told his board that the prospect of going out of business would focus the foundation on bold problem solving rather than self-perpetuation.”

Also from that 2002 WSJ article: “With nearly $500 billion in US foundation endowments, an increase in the payout rate of two percentage points would make an additional $10 billion or so available each year. To understand what such a figure might mean, consider that United Nations Secretary-General Kofi Annan has suggested that $10 billion a year is the amount needed to reverse the global AIDS epidemic.” Yet six years later, the minimum remains at 5%.

Personally, there is no doubt in my mind that a tremendous increase in preschool investment today would pay huge social dividends over time, dramatically reducing the need for many types of social and charitable expenditures down the road. Such an investment could go far to reduce poverty and violence in the future.

I concede that private foundations are already free to give more and spend less, but executives long accustomed to minimum distributions will need some prodding.

Whether or not Congress raises the bar, donors should pressure private foundations to reevaluate their missions, focus on their most important projects, and design an exit plan that injects more capital into society more quickly. Give your best for thirty years and then pass the baton to the next philanthropist. This sort of approach will bring an entrepreneurial urgency to philanthropy, unlock billions in capital, and encourage additional giving through the most compelling case of all: results.

Builders of great wealth might find it difficult to design a self-destructing foundation.  Fortunately, good models exist, such as the Aaron Diamond Foundation ($220 million given away in ten years) and the Lucille P. Markey Charitable Trust ($500 million given away in 15 years). The point of philanthropy is to give, and when foundations hoard capital that could be put to good use now, it costs us all in the long run.