Some foundations simply do not disburse enough in grants, and many more lack a clear strategy for matching their spending levels to their missions. Instead of employing a tactical approach to payouts, they stubbornly stick to the minimum annual distribution requirement of 5 percent of assets.

Moreover, many try to protect their assets in perpetuity even when not required to do so by trust instruments or other stipulations. One reason for this conservative–or perhaps parsimonious–approach to philanthropy is that trustees typically are executives from the corporate world who are more comfortable maximizing financial performance and preserving assets than giving money away.

With tens of trillions of dollars in intergenerational wealth changing hands over the next 50 years, thousands of new private foundations will likely appear. The payout stakes will grow higher, and demands that foundations improve their spending decisions will grow louder.

The Senate Finance Committee has been hammering at a staff discussion draft, first introduced in June 2004, which includes ideas to cap the allowable overhead. Several well-publicized episodes of questionable foundation spending on perks and salaries have emboldened those who call for tighter rules.

Disallowing all overhead would be a mistake. Some expenses, such as reasonable costs of screening grant applicants and monitoring grantees, should count because they help ensure sound philanthropy. Outlays for first-class travel and excessive trustee fees are another matter. Congress should step in with a sensible round of surgical reforms.

But foundations also must transform the way society perceives their role and responsibilities. Foundation presidents and boards of trustees must lead the way in shaping this change in institutional thinking. They should begin with a no-holds-barred debate on the payout issue–a debate that includes not only foundations, but also grantees, regulators, policymakers and others with a stake in what foundations do. Such a discussion would likely erase the presumption that foundations fulfill their duty simply by distributing the legal minimum.