2012/03/29

Management defined


Scott Berkun, Jan 2004

The other day, over lunch, a friend recounted how her boss was just like the manager from the movie Office Space. After a few stories of cubicle horror related to said manager, she looked up at me and asked: “Am I an idiot? Or did something I did in this or a previous life make me deserve this?” I didn’t know what to say, other than that no one deserves to have a bad manager (Well, almost no one). Certainly this friend, who is bright, hard working, and fun, doesn’t deserve one. But unfortunately there is a normal distribution of manager quality, and many people with the job title of manager don’t quite rise to the challenges of the role. It’s often not their fault: sometimes they’ve just never had a good manager themselves to model after. Then again other times they’ve just focused on the wrong things.

What follows is some advice for managers on how to manager people, especially talented people. I worked for nine years at Microsoft, sometimes managing projects, sometimes managing people, but always with a manager above me. I think I’m smart, but many of the people who have worked for me definitely were. Over the years I’ve experienced many mistakes and successes in both how I was managed, and how I managed others. There’s no one way to manage people, but there are some approaches that I think most good managers share.

Management defined

I once had a manager that I and his other reports called “the bossman”. We called him this in jest, making fun of his authority, because it was so rare that he needed to use it. Instead arguments always centered on some problem that needed to be solved, and what the best approach would be to solve it. If there was a disagreement, he’d restate the goals and expectations, make sure everyone was still on the same page, and then lead a discussion of possible alternatives. Working for him always felt like a partnership. Decisions were made on the basis of their merit, and any point of view was allowed provided it added value to the discussion. He didn’t care if he was right or wrong, only that the best ideas survived. In years of working for this guy, I can only think of a handful of incidents where he asked me to do something that didn’t already make some degree of sense to me. His authority, though obvious since he was my boss, was rarely something he had to exercise or use as a tool to get things done. Was this guy a good manager? It depends who you ask.

For many people and organizations, management is considered in relatively strict and authority based terms. The manager, or the boss, is the person who has authority and responsibility over a bunch of other people. Often he or she can hire and fire people, give raises, decide who works on what, and has political and social access to other important people in the company. Depending on where you work these things are true to varying degrees. I learned that the more you talk to different people, in different lines of work, about managers, the more you learn how differently defined the role and job can be. There are also huge differences in what employees in different organizations expect their managers to do for them. What is expected of managers in one organization would be a revelation in another.

My experience with the bossman taught me that managers have many undocumented, unsaid, but incredibly important, functions. They have more to do with enabling the happiness and productivity of the people that work for them than anyone else in the organization. A manager, at any level of hierarchy, from line project manager, to CEO, has an emotional responsibility to their reports, or to the people who are dependent on them. Like a parent in a family, or a coach of a sports team, a manager sets the tone for dialog (open and thoughtful or defensive and confrontational?), enables or prevents a fun work environment, and interprets (or ignores) the corporate rules and structure, into a daily practice of shared work. While managers are hired to get stuff done for their employer, they also make a personal commitment to each of their reports by being their boss. The manager automatically takes on more responsibility for the career of their employee than anyone else in the organization or company. They might ignore this responsibility, or do a crappy job of it, but the responsibility is still theirs.
I look at the bossman as an example of a very effective project manager. I think he hired people very carefully, trying to find people that would work within his management philosophy. He chose people that were self motivated and confident enough that he didn’t have to expend much energy figuring out how to get them to work hard. Then he created an environment where good ideas rose to the top, further encouraging smart people to want to contribute. The bossman made working for him feel like a proper relationship: he got something from us, and we got something from him. I think that this kind of management style requires more skill and savvy than a more hierarchical drill sergeant type of manager. Unlike the later, the former demands comfort with degrees of ambiguity, and the confidence to allow people to openly disagree, or intellectually trump, their manager. But from my experience, this open management style is the only way to have a “best idea wins” kind of culture.
However, I know some people who would have criticized the bossman as a manager that was not in control of his team. If you walked into the room at a brainstorming session, or group discussion, it wasn’t always clear who the head honcho was. They’d also say that he delegated too many decisions down to the people that worked for him, and perhaps, trusted them too much. I suppose the final analysis has to come down to the results. If the quality of work produced by the team is high, and group morale and motivation are skyrocketing, then the often fuzzy lines of hierarchy and the open communication style can’t really be criticized.
More than anything else talented people want to be in environments that both appreciate and cultivate their talents. Any successful manager of talented people has to come in every day, in every meeting, and directly work towards making this happen. This doesn’t mean coddling people, or denying the team’s goals in favor of making someone feel good. Instead it’s about making actions and decisions that both clarify how people’s talents apply to the team goals, and working to keep the team happy, motivated, and focused in that application.

The nature of smart or talented people

Everyone is talented. Certainly not everyone is as talented as everyone else, but every individual has certain things they are good at, and certain things they suck at. Assuming you are a manager, your first task is to figure out what talents each of the people working for you have. This is not easy. It requires more than looking at their resume. Most of the important talents that people have live underneath the over processed job descriptions and functional roles most organizations have created for talented people to live in. Good managers must step back from the hierarchy, bureaucracy, and formalization, and actually see people not just for what they do, but for what they can do, that they currently are not. This includes things that they may never have had the chance to do, as well as talents that they may not have recognized themselves. A manager that treats his reports as cogs in a wheel is guaranteed to get the performance of a cog in a wheel. But a manager that develops and grows people into new strengths and abilities will always get more out of their team that their cog minded peers will of theirs.
Once, at a lecture I gave, some managers in the room balked at this idea, joking that not everyone on their team was particularly talented. (If you’re reading this now, and you know who you are, please place a big L on your forehead. You are now banned from the rest of this essay :). Even if you don’t have a team of rock stars, it’s your job as manager to either work with the people you have to make them better, define their roles to match their strengths, or to manage them out of your group/team/company. But no matter how you deal with it, it’s your job. That’s why you get paid the big bucks, or in all probability, the bigger bucks than the people working for you.
Although it is fair to say that different kinds of organizations expect different things out of their managers and employees. Sometimes the work involved is more repetitive and cog like than not. The job might not require creative thinking, or expect people to make improvements to processes and approaches as part of their job. If that’s the case, then hopefully it’s been made clear to managers and employees before they are hired. Hierarchical models do make sense if the majority of work is in the domain of some kind of repetitive actions, rather than generating ideas, or dealing with new and complex situations. In the end, good managers know to use as little hierarchy and authority as needed for the group to be effective, regardless of the domain.

Making people visible

Stars need to shine. Managers are granted some amount of visibility into the larger organization (and often can work to obtain more), and it’s up to the manager to dole out some of that visibility down to their reports. While managers need to establish themselves, and manage peer and senior level politics, they also need to help establish the people on their team along with them. It’s a great thing for a manager to be seen helping new stars rise. People will say “who’s that smart woman over there?” And the answer will be “Oh, that’s Sally. She’s on John’s team”. When people see that somehow you’re able to cultivate and grow smart people, you win more acclaim than if you presented the ideas yourself. I think if good ideas are in abundance, and the culture promotes and rewards their creation, there’s much less competition for credit for it.

In the unspeakable acts department, there is never any reason to take credit from someone that works for you. This only puts poison in your own well. If there is any ambiguity as to who came up with what idea or is responsible for some achievement, yield in their favor (or if it was a real collaboration, and not a manager fabricated one, liberally mention their name with yours, as in “Sally and I…”). Smart people will repay you for your generosity many times over with their trust. On the other hand, since smart people often care more about their ideas than anything else, if they can’t trust you with them, they’re unlikely to trust you with anything else.

Ask them what they need to kick ass

The following phrase is one of my favorite tools as a manager: “What do you need from me in order to kick ass on this project?” Asking this question invariably surprises people with its directness. It’s a cut to the chase, where you, as manager, lay out on the table the magic wish list of possibilities, and asks them to put their cards on the table. If a good discussion ensues, you then have the opportunity to actually deliver some of the things they might need. All the pet complaints they’ve been harboring have a chance to surface, and perhaps, simply fade away in the face of your brutal honesty and openness as a manager.
The management theory behind why this can work is this: assuming you acknowledge that people that work for you might be smart, talented or both, you have to find a way to communicate this to them. The simplest and most important way is to allow them to participate (not dominate) in defining how you will manage them. Regularly asking them what they need from you is an enormous act of respect. You are putting them, for a moment, on a nearly even playing field with you. But it is also an invitation to them to step up, and fully invest themselves in their work. This is because if they don’t say they need something, they must admit to themselves that there’s no external reason that they’re not kicking ass on the project.
But of course, if not applied carefully, this approach can backfire. The burden is on the manager to make the conversation an open and positive one, without getting defensive or giving them reason not to disclose the information you’re asking for. The insecure manager, the non-communicative manager, the manager who makes everything about them, will generally fail with this approach. They’ll start off ok, but as soon as anything about their management approach, personality, working style, or other aspects of their management qualities come into question, they’ll get defensive, and retreat back into their authority, and end the discussion. It’s really a form of denial. To be a manager means accepting feedback on how you manage.
One practical way to overcome this starts with a meeting. The manager sets up a meeting with the employee and opens a discussion about how they like to be managed. The manager should explain the purpose of the meeting, and asking clarifying questions about what the other person says. Generally, the manager should say little about their own opinions. Zero. Zilch. Zip. Instead, their job is to listen, help clarify the other persons thoughts and then go away and think about what they said.
The reason why the manager needs to shut up is that they have all the authority. If they really want to understand what their employee needs from them as a manager, they’ll only be honest if they believe they won’t be judged for it. As soon as the manager start in with “but why don’t you just do X?” or “sure sure, but I’ve learn that Y is really the best way to..” the conversation has effectively ended. Some more assertive people might argue further and put up a good fight, but many people won’t.
I’ve found that in many cases, the easiest time to have this sort of conversation is when you go through a reorg, take over a new team, or have someone new join your team. I’ve found that when the slate is clean there’s less expectations and relationship baggage to deal with. If you don’t have a clear point in time, that’s ok. Do it anyway. Be decisive and decide to improve your management of your talent right now. If there are problems you’re capable of fixing or things that you could be doing to improve your team, you won’t know unless you take the initiative. More assertive people might call you out and set up this kind of meeting with you, and they deserve bonus points for that, but it’s the manager’s job to make discussions about management happen.
In terms of the actual conversation, most of the time, most of what you’ll hear are simple and reasonable adjustment to how certain things are done. Some people might say that they know of better ways to run the meetings you organize. Or that they’d appreciate more of a balance of positive feedback (which they feel their work warrants) with critical feedback. But who knows. They might tell you something that no one else in your career has thought to say, that can dramatically improve your abilities as a manager. It’s in your interest to make them comfortable giving you this kind of commentary. Offer up something you are specifically trying to get better at, and ask them for their opinion. I think I’ve often gotten much better feedback on my management skills from people I’ve managed, than from the people I’ve worked for.
The big risk here that some managers have complained about is that now the manager has to actually go think about what the employee said, which can be complex and time consuming. My response: Shut up. It’s your job. What else are you doing that is more important than trying to find ways to get your employees to do their best work? If you’re not interested in this kind of thinking, why on earth are you a manager?

Respect what talents they have, that you do not (and hire with this in mind)

I’m a fan of sports analogies to management, so here’s one: every team sport requires many different skills. No one player is the best at everything and winning games requires each player to understand their specific role, the roles others play, and how it all needs to fit together to work. Business or technical organizations are no different. Things only go well if everyone understands (and is comfortable with) their role, knows the roles of others, and has some understanding of how it all fits together. Good managers should be easily seen as coaches (not the Bobby Knight chair throwing type, but the John Wooden nurturing leader type), who value the different roles, and try to bring together the right kind of chemistry to make good things happen.
If you are a manager, it’s unlikely that you were born that way. For awhile you probably had the job that one of the people that works for you currently has. You used to be more specialized, and have a well defined expertise. This means that your natural bias will be towards over involving yourself in that role, and under-involving yourself in the other roles people play on your team. It’s human nature. Perhaps you used to be a developer, you liked being a developer, and you think you’re good at developing. So when an engineering issue comes up that impacts marketing, interface design and localization, odds are you’ll tend to focus most on the engineering point of view, which might not always be the most important one.
Odds are also good that if you do this often enough, you will destabilize your team, undermine its other strengths, and lead you and the team to great shame and tragic ruin (Ok, maybe not. But it will impact what kinds of issues people bother raising in front of you). As the manager, your philosophical biases often become the team’s philosophical biases. You have to go out of your way to periodically allow your own points of view to be evaluated, questioned, and improved.
Sometimes the only way to make this happen is to bring an outsider in to evaluate the hidden biases an organization has, and who can make commentary and recommendations without fear of political recriminations. You can only have the best ideas surface if you’re drawing from a wide pool of perspectives, including those different or even in conflict with your own.
Another solution is this: First acknowledge that you have weaknesses, both in skills and in knowledge. Second, admit that you’re ignorance hurts not only the product or website, but the team itself. Third, get help in hiring experts for roles you are not familiar with, and go out of your way to involve them, and their perspective, in your decision making process. Deliberately hire first rate strong willed people to represent disciplines that you tend to undervalue. Force yourself to be on the top of your own game, and to make sure it’s not bias and ignorance that drive you, but good judgment refined by divergent perspectives.

Small esoteric note that probably isn’t worth reading:  Originally this essay’s opening paragraph made (mis)use of the term law of averages, implying that half of all managers were below average in quality, when more accurately I should have stated half of all managers were below the median level of managerial quality. I replaced this phrase instead by referring to the normal distribution, which I believe applies to managers, diffusing the whole mean/average/median fiasco. You see, unexpectedly, my originally inaccurate use of the term “average” unleashed a torrential flood of, shall we say, unkind feedback in my general direction, regarding my misuse of terminology.
This above note is presented for both entertainment purposes (yes, there are people who will pick on your essays about management if you are sloppy with your secondary points that include statistical terminology – who knew) and in recognition that a modification of this essay occurred as a result of said feedback, which though I’m very appreciative for, wasn’t generally very kind (“learn math” doesn’t really offer much practical advice, though it did make me laugh). And for the record since several people asked without giving a return email address, I did take probability, statistics and mathematics classes at CMU, despite my sloppy use of the concepts. Just goes to remind me that sometimes errors I see in other people’s stuff might just be oversights, rather than reflections of ignorance.) – 2/4/2004


Consolidate Debt: Tips on when its best to try debt consolidation



When consumers come to the conclusion that their balances are just not going down, it's at this time as to when they seek a solution to get rid of credit card debt. With increasing compound interest rates, typical finance charges and fees, it's no wonder the desire to consolidate are sought by millions of consumers throughout our country. In summary, we'll explain the key benefits to debt consolidation and how such programs can provide innovative and yet useful tips when trying to consolidate credit card bills.
When looking for tips on how to consolidate debt, they often look to reputable agencies which use their quality effort to lower the interest rates and fees. If a consumer tries to do this on their own, the creditors are less willing to reduce the fees and charges. It's always a great option which a consumer goes through an "A" Rated BBB counseling agency


These programs have helped millions regain control of their financial obligations. Most people make only the minimum payment which is lost in fees and is not applied toward the actual balances. This makes the consumer not have control of what they actually owe and become enslaved to the creditors and their fee structure. The benefits when deciding to consolidate credit card debt is the reduction of minimum payments, reduction of interest rates and if delinquent the program may possibly re-age the accounts to a current status after three consecutive payments.
When trying to find useful tips on how to consolidate debt, it's important to consider debt consolidation as the program does yield a great deal of benefits.

The process on how to consolidate debt

The consumer would need to fill out the debt reduction calculator to find out what the payment would actually be. When going through the discussion, the advisor will explain in detail how to consolidate debt along with the advantages and disadvantages of doing so. While speaking with one of the advisors, they will ask information such as creditor name and estimated balance. At that time, the advisor will show a comparison on what they were doing vs what a debt consolidation program can do to help.
If wanting to find a good way to get rid of credit card debt, this program will do it. After the discussion, the consumer will have the option to not proceed or to enroll into a debt consolidation or settlement program. Going through the process, the advisor will ask for the necessary information to complete the enrollment. When going through this process, the applicant will have the option to setup the date for any date they prefer. If the consumer is delinquent on the their bills, after a few consecutive payments in a debt consolidation program the creditor may re-age the accounts to a current status.

After the enrollment is complete and the phone conversation ends, the consumer will be sent documents to enroll into the best debt consolidation program. These documents are typically sent by both US Mail and through a digital web signature. Once signed, the company will begin the process to prepare your file for servicing. Throughout the coming days, the consumer may be asked to send in a copy of their statements. The reason this may be requested, is to ensure that the company has the accurate information necessary to prevent any rejection by the creditors.
After the service agreement and statements are on file, an agency will start by referring the completed documents to a servicing agency for the debt consolidation program. At this time, the proposals will be sent to the creditors proposing the new terms and conditions previously discussed. Once the proposals are received by the creditors, they typically send it back to the consolidation agent with an acceptance or denial. Most debt consolidation programs, over quote the consumer to ensure acceptance
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Each month, a deduction will occur through an ACH draft on the customers checking or savings account. Once this payment is received, it will then be sent to the creditors based on the new terms and interest rates previously agreed upon through the proposals that were sent. As indicated by FICO's web site, debt consolidation is not factored into the consumers credit score.
You have to understand, the benefits to these consolidation loans have been provided by the creditors, not anyone company. They realize that their taking advantage of its customers through fees and charges, and that it's only a matter of time until that customer files bankruptcy. A good majority of its customers make minimum payments, most of which goes towards finance charges and fees. It's for this reason, as to why these debt programs exist.

The top 5 benefits to consolidate debt

  1. Reduce minimum payments.
  2. Reduce interest rates.
  3. Reduce finance charges and fees.
  4. One monthly payment.
  5. Not factored into your credit score.
Here are a few disadvantages to debt consolidation

  • Accounts will be put on hold.
  • Some creditors will not accept the program.

Making the decision to consolidate debt

Several Americans look to consolidate credit card debts on a daily basis. Most Americans are fed up with making pointless minimum payments most of which is applied toward fees and not the actual balance. What the creditors do to the consumers should be considered illegal and wrong. Why should consumers continue to make minimums when the balances never move? This statement is common logic and those whom delay on taking control of their credit cards only find themselves in the same situation years down the road.
We have a network of programs that are custom fit to each consumers unique situation. So if you feel as if these balances are not moving, then making the decision to consolidate credit card debt should be a no brainer
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The debt consolidation option works to keep the balance untouched and also works to consolidate bills into one payment. Another key benefit is the reduction of interest rates and charges. In a nutshell, that's pretty much what consolidation does
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The top ways to get rid of credit card debt
We've taken the guess work out of finding the best option to consolidate debt. We've been doing this for well over the years and are contracted with the leading debt management and settlement providers providing ethical and useful programs to our applicants. In addition to this service, the company provides a financial analysis, a useful tool which pays for its self many times over. We always recommends that consumers utilize debt consolidation whenever possible as it's a moral program that keeps the balance intact and works only to reduce interest rates and unnecessary fee's when doing it on your own.
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Financial endowment



A financial endowment is a transfer of money or property donated to an institution. The total value of an institution's investments is often referred to as the institution's endowment and is typically organized as a public charity, private foundation, or trust.
Among the institutions that commonly manage an endowment are: academic institutions (e.g., colleges, universities, private schools), cultural institutions (e.g., museums, libraries, theaters, hospitals) and religious establishments.
An endowment may come with stipulations regarding its usage. In some circumstances an endowment may be required to be spent in a certain way or alternatively invested, with theprincipal to remain intact in perpetuity or for a defined time period. This allows for the donation to have an impact over a longer period of time than if it were spent all at once

 College and university endowments


Academic institutions such as colleges and universities will frequently control an endowment fund that funds a portion of the operating or capital requirements of the institution. In addition to a general endowment fund, each university may also control a number of restricted endowments that are intended to fund specific areas within the institution. The most common examples are endowed professorships (also known as named chairs), and endowed scholarships or fellowships.


In the United States, the endowment is often integral to the financial health of private educational institutions, whereas public institutions are often funded partially or fully by state or local governments. Often alumni of the institution will contribute the bulk of capital to the endowment. By contrast, universities in the United Kingdom are frequently public rather than private institutions. There is therefore less of an endowment funding culture, with financial figures generally much lower. Endowment funds have also been created to support public secondary and elementary school districts in several states in the US.[1]
[edit]Restricted endowments
Endowment revenue can be restricted by donors in numerous ways. Professorships and endowed scholarship/fellowships are the most common restriction on large donations to an endowment. The restricted/unrestricted distinction focuses on the use of the funds; see quasi-endowment below for a distinction about whether principal can be spent.


[edit]Endowed professorships
An endowed professorship (or endowed chair) is a position permanently paid for with the revenue from an endowment fund specifically set up for that purpose. Typically, the position is designated to be in a certain department. The donor is allowed to name the position, which typically takes the format: First-name Last-name Professor of Department-name. Endowed professorships aid the university by providing a faculty member who does not have to be paid entirely out of the operating budget, allowing the university to either reduce its student-to-faculty ratio, a statistic used for college rankings and other institutional evaluations, and/or direct money that would otherwise have been spent on salaries toward other university needs. In addition, holding such a professorship is considered to be an honor in the academic world, and the university can use them to reward its best faculty or to recruit top professors from other institutions.[2] Currently, a donation of US$1–3 million is required to endow a professorship at the most highly-regarded private and (flagship) public universities.[citation needed] At smaller state schools, donations in the low six figures may suffice.[citation needed]


The earliest "endowed chairs" were those established by the Roman emperor and Stoic philosopher Marcus Aurelius in Athens in AD 176. Aurelius created one endowed chair for each of the major schools of philosophy: Platonism, Aristotelianism, Stoicism, and Epicureanism.[3] Later, similar endowments were set up in some other major cities of the Empire.[4]
The practice was adapted to the modern university system beginning in England in 1502, when Lady Margaret Beaufort, Countess of Richmond and grandmother to the future king Henry VIII, created the first endowed chairs in divinity at the universities of Oxford and Cambridge.[5]
Nearly 50 years later, Henry VIII established the Regius Professorships at both universities, this time in five subjects: divinity, civil law, Hebrew, Greek, and physic—the last of those corresponding to what we now know as medicine and basic sciences. Today, the University of Glasgow has fifteen Regius Professorships.


Private individuals soon adopted the practice of endowing professorships. Isaac Newton held the Lucasian Chair of Mathematics at Cambridge beginning in 1669, more recently held by the celebrated physicist Stephen Hawking.[6]


[edit]Endowed scholarship/fellowship
An endowed scholarship is tuition (and possibly other cost) assistance that is permanently paid for with the revenue of an endowment fund specifically set up for that purpose. It can be either merit-based or need-based (which is only awarded to those students for whom the college expense would cause their family financial hardship) depending on university policy or donor preferences. Some universities will facilitate donors' meeting the students they are helping. The amount that must be donated to start an endowed scholarship can vary greatly.
Fellowships are similar, although they are most commonly associated with graduate students. In addition to helping with tuition, they may also include a stipend. Fellowships with a stipend may encourage students to work on a doctorate. Frequently, teaching or working on research is a mandatory part of a fellowship.
[edit]Financial operation


A financial endowment is typically overseen by a board of trustees and managed by a trustee or team of professional managers. The financial operation of the endowment is typically designed to achieve the stated objectives of the endowment.
At universities, typically 4-6% of the endowment's assets are spent every year to fund operations or capital spending. Any excess earnings are typically reinvested to augment the endowment and to compensate for inflation and recessions in future years.[7] This spending figure represents the proportion that historically could be spent without diminishing the principal amount of the endowment fund.


However, the financial crisis of 2007–2010 had a major impact on the entire range of endowments globally. Most notably, large U.S.-based college and university endowments, which had posted large, highly publicized gains in the 1990s and 2000s faced significant losses of principal across a range of investments.


Harvard University, which held $37 billion in its endowment fund on June 30, 2008, was reduced to $26 billion during the following year.[8] At Yale University, the pioneer of an approach that involved investing heavily in alternative investments such as real estate and private equity, reported an endowment of $16 billion as of September 2009, a 30% annualized loss that was more than predicted in December 2008.[9] At Stanford University, the nation's third-wealthiest university, was reduced from about $17 billion to $12 billion as of September 2009.[10]
Additionally, Brown University's endowment fell 27 percent in the fiscal year that ended June 30, 2009, to $2.04 billion.[11] George Washington University lost 18% in that same fiscal year, down to $1.08 billion.[12]
[edit]Quasi-endowments


A quasi-endowment, or fund functioning as an endowment, are funds merely earmarked by an organization’s governing board, rather than restricted by a donor or other outside agency, to be invested to provide income for a long but unspecified period, and the governing board has the right to decide at any time to expend the principal of such funds.[13] Separately from the endowment versus quasi-endowment distinction, there's another 2-way categorization of restricted and unrestricted, which focuses on the use of the funds. As an example, a quasi-endowment might be restricted by the donor to supporting the tennis team; the use is restricted to one purpose, but the governing board could "invade principal" to support the tennis team.
[edit]Types of Endowment Funds


True Endowment funds are received from external donors with restriction that the principal or gift amount is to be retained in perpetuity and cannot be spent.
In Term Endowment funds all or part of the principal may be expended only after the expiration of a stated period of time or occurrence of a specified event, depending on donor wishes.
Quasi Endowment funds must retain the purpose and intent as specified by the donor or source of the original funds and earnings may be expended only for the specified purpose.
[edit]Criticisms


Officials in charge of the endowments of some universities have been criticized for "hoarding" and reinvesting too much of the endowment’s income. Given a historical endowment performance of 10–11%, and a payout rate of 5%, around half of the endowment’s income is reinvested. Roughly 3% of the reinvestment is used to keep pace with inflation, leaving an inflation-adjusted 2% annual growth of the endowment. Of course, many endowments fail to earn 10-11 percent.


Two arguments against inflation adjusted endowment growth are:[14]
The future needs the money less than the present
Some claim that the future will be much richer materially than the present due to technological innovation and specialization. In counterpoint, Nobel laureate James Tobin makes a case for intergenerational equity.


A constantly growing endowment shields universities from competitive forces
As the endowment’s reinvestment starts becoming a larger part of its growth, the need for happy students and alumni to donate funds to the university’s budget and endowment is reduced. Therefore, traditional market forces that provide incentives to run a university efficiently may be greatly reduced and at least theoretically lead to university administration not being held accountable for its actions. (This might also be considered a worthy goal, as it would mean the freedom of academia from financial concerns, which could cause a wider range of research topics to be available to students and faculty.)


Large endowments have been criticized for "hoarding" money.[15][16][17] Most philanthropies are required by federal law to distribute 5% of their assets per year,[18][19] but university endowments are not required to spend anything.[18] Many universities with very large endowments would require less than 5% to pay full tuition for all their students. For example, it has been estimated that if in 2006 all the Harvard students paid the maximum in tuition and fees, it would amount to less than $300 million.[20] In 2007, if Harvard had spent 5% of its $34.6 billion endowment,[21] all Harvard undergraduate and graduate students could attend for free and the university would still have $1.3 billion left over.[16] It would require less than 1% of the endowments of Harvard and Yale to allow all students to attend tuition-free;[18] Stanford, MIT, Princeton and Rice would require less than 2% of their endowments and 29 schools would require less than 3% for all their students to attend tuition-free.[18] Despite the decreasing values of endowments, congressmen, including Charles Grassley, have questioned whether the endowments are contributing enough to maintain their tax-exempt status.[17] Peter Hotez of George Washington University has claimed that pharmaceutical companies are contributing more to the poorest people than are wealthy universities.[17]
[edit]Size


Financial endowments range in size depending on the size of the institution and the level of community support. At the large end of the spectrum, the total endowment can be over one billion dollars at many leading private universities. As an example, Harvard University has the largest endowment in the United States with close to $26 billion in assets as of June 30, 2009.[22] However, each university typically has numerous endowments, each of which are frequently restricted to funding very specific areas of the university. The most common examples are endowed professorships (also known as named chairs), and endowed scholarships or fellowships. For instance, Harvard has 10,800 separate endowments.[

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