Stewardship of purpose: Legal perspectives on who sets the terms of foundation governance and who has a voice

Public-benefit foundations are important societal actors. How they are governed is therefore of legitimate public interest: Who makes major decisions for the foundation? Who ensures that these decisions comply with the law, are consistent with the foundation’s established public-benefit purpose, take account of the founder’s original intent, and are responsive to societal change? What are the legal requirements around foundation governance?

Unlike companies, foundations have no members or shareholders who exercise ownership or membership control. Therefore, the governing board occupies a central governance position and is legally responsible for managing the foundation, protecting its assets, and pursuing its public-benefit purpose in accordance with applicable law and the foundation’s statutes.

In most laws, the board is designated as the main governing body of a foundation, and the majority of responses to Philea’s recent Futures of Governance survey confirmed that the board has the most decision-making power over resources and strategic direction of the respondents’ foundations. Taking this as a starting point, it seems that the good governance of a foundation depends to a large extent on the ethical standards and stewardship mindset of the board, and how embedded the organisation is in the field.

However, foundation governance cannot be understood only in terms of internal structures and practices. Public-benefit foundations and their governing bodies are subject to hard law and public supervision, while soft law and self-regulation also influence their governance. How do these different dimensions interact?

What do national foundation laws say on foundations’ internal governance?

Philea’s legal country profiles, prepared by national experts and updated in 2025, examine the legal and fiscal environment for philanthropy across 40 European countries. This research shows that foundation laws provide limited detail on internal governance. The laws often stipulate the following:

• Foundations are governed by a board
• In ten countries, a supervisory board (second-tier structure) is required for certain foundations (e.g. foundations of a certain size)
• Founders can generally not be the only board members
• Several countries require a minimum of three board members
• In the countries that allow it, board members can receive reasonable remuneration
• Board members are legally (personally) liable for their actions
• The law does not usually detail succession plans and procedural rules

Beyond this, founder(s) generally have considerable latitude when establishing governance arrangements in the statutes or bylaws. Once the foundation has been established, boards may only adapt those arrangements within the boundaries of applicable law, the statutes, amendment rules and any supervisory requirements.

The founder(s) usually appoint the initial board and may determine how new board members are appointed. However, the recent Philea governance survey indicates that many foundations lack formal succession plans and rely primarily on board co-optation. Reliance on co-optation may favour candidates from existing board member profiles and networks, creating a risk of less diverse board composition and weaker embeddedness in the fields and communities that the foundation aims to support. Board recruitment also tends to prioritise professional expertise over lived experience in the field that the foundation supports, as well as a diversity of perspectives.

Rights and duties of board members

National laws make the governing board responsible for the sound management of the foundation, and ensure that the foundation pursues its purpose and acts in accordance with applicable law as well as its statutes. In some jurisdictions, the board may delegate certain powers to other persons, although it normally retains ultimate responsibility for their exercise. Depending on national law, board members may be personally liable to the foundation for losses caused by gross negligence or wilful misconduct. Several countries apply a business judgement rule or comparable protection that reduce liability when board members make informed decisions in good faith and in the foundation’s best interest.

Against this background, core legal duties and principles of good foundation governance require board members to:

• Manage the foundation and its assets with a view to pursuing its public-benefit purpose and mission in compliance with the law and the foundation’s statutes or by-laws.
• Act with care, loyalty, and diligence towards the foundation and its purpose.

These principles are often only implicitly embedded in the laws. Ensuring compliance has become increasingly demanding and may contribute to greater risk aversion in board decision-making.

Control mechanisms and external governance factors

When considering foundation governance, one must also look at mechanisms in place to monitor good board behaviour. The absence of ownership or membership control mechanisms has led foundations to be regarded as potentially more vulnerable to board misconduct, although the extent of this vulnerability depends on the other oversight mechanisms in place. These may be internal, public-law based or self-regulatory and include other governance bodies, state supervision, national reporting and compliance rules, and voluntary standards or principles.

In ten countries, a second-tier body with formal supervisory powers is required for all foundations or for foundations of a certain size. Where a formal supervisory body is not legally required, the founder(s) may nevertheless establish one which can provide checks and balances for the governing board and participate in appointing new board members.

Consideration of foundation governance must also take into account that public-benefit foundations are subject to public supervision. Public supervisory authorities, charity regulators, fiscal authorities and courts constitute external governance mechanisms intended to ensure compliance with the law and the foundation’s statutes and to protect its assets and its public-benefit purpose. Their functions are therefore not only corrective but also protective. Supervision generally does not extend to evaluating the merits of strategic decisions.

Compliance, public-benefit mission and societal relevance as governance factors

In 2023, 163 respondents to a Philea survey on exploring 21^st century philanthropy identified “conservative” boards as one of the barriers to adopting more forward-looking, innovative and agile approaches to pursuing the mission of a philanthropic foundation. Possible reasons include both external legal and compliance pressures, such as liability concerns, and internal governance practices relating to board composition and succession. Reliance on board co-optation may favour candidates with similar profiles and may therefore be associated with less diverse board compositions. Respondents to the Philea Futures of Governance survey associated increased compliance and liability concerns with more cautious and potentially less innovative board behaviour.

Board conservatism may also partly reflect a governance model detached from the communities the foundation aims to serve, evident in who serves on boards, how staff are involved in decision-making, and how the communities the foundation serves are consulted or represented. At the same time, growing questions about foundations’ legitimacy and societal relevance invite them to consider different and more participatory governance approaches.

Codes of conduct and soft law approaches on governance

The freedom to design governance arrangements and the interest in more innovative governance models are reflected in the development of self-regulatory codes and principles of good practice in many European countries. These often encourage foundations to consider, where not already required by law, a two-tier governance structure with a supervisory body, more diverse board compositions, the inclusion of different voices of society, possible age and term limits, and clear conflict-of-interest rules. They also frequently address sound management and stewardship practices and provide guidance on asset allocation.

Governance: Quo vadis?

Looking ahead, the sector should continue to highlight innovative governance approaches that can help foundations remain fit for the future and strengthen society’s trust in them. The future debate should distinguish between minimum safeguards that may require legal regulation and governance practices that may be better encouraged through soft law. The former includes clear duties,  transparency requirements and effective supervision, while the latter includes term limits, systematic succession planning, board evaluation, greater diversity and meaningful stakeholder participation.

The freedom to design governance arrangements creates opportunities for more inclusive governance models but also places significant responsibility on boards to ensure that foundations remain both faithful to their purpose and responsive to the society they seek to benefit.

The authors want to thank Hanna Stähle for her valuable input.