The Dartmouth College Supreme Court Case of 1818: The Legal Basis for Institutional Philanthropy and Implications for CSR in Kazakhstan Corporate Social Responsibility Working Group American Chamber of Commerce in Kazakhstan December 2005 Andrew Wilson Eurasia Foundation

History of the Case (1) Dartmouth College chartered in 1769 Major private donors named to Board of Trustees (BOT) Charter provided for BOT to manage college as lawful business operation

History of the Case (2) Between New Hampshire made major contributions to Dartmouth Dartmouth made concessions in curriculum in exchange for state support (secularized curriculum)

History of the Case (3) In 1816 Governor pushed legislation to amend Dartmouth’s charter Changed composition of board and expanded religious freedom Trustees sued newly appointed Dartmouth president in 1817

Trustees of Dartmouth College v. Woodward (1) Case is oft-cited as creating legal right of corporations to be free from state control Real importance: protection of private action from public interference The act of incorporation does NOT subject corporation to perpetual control by state To protect property interests of the donor, charter cannot be subject to state revision

Trustees of Dartmouth College v. Woodward (2) “The corporation is the assigner of [the donor’s] rights, stands in their place, and distributes their bounty as they would themselves have distributed it.” Marshall asserts that legislative perception of the public good cannot overcome the rights of individuals expressed in contracts.

Legal Basis for Charitable (non-profit) Institutions Marshall: “Charitable or public-spirited individuals, desirous of making appropriations for charitable…purposes find it impossible to effect their designs securely…without an incorporation act.” Ruling requires legal registration of charities After “Dartmouth” decision, government could not rely on philanthropic associations to address public perceptions of societal needs.

Delineation of State Responsibility No longer could states delegate to private entities the responsibility for educating youth, caring for the poor, or building roads, because states could no longer control how private entities fulfill their duties Civil society was redefined – separating government institutions from private charitable corporations.

Implications for the U.S. in 1818 Decision ensured the rights of organizations to support minority positions Protected the rights of citizens to pursue different visions of American society through memberships in smaller communities Contract law contributed to dynamic expansion of US economic growth

Implications for the U.S. in 2005 Independent sector employs 11.7M workers Independent sector employment growth = 2.5% per year (v. 1.8% in business sector) Non-profit expenditures = 9% of US economy* (more than 4X economies of all 5 countries of Central Asia combined). * Lawrence J. Friedman, “Philanthropy in America: Historicism and Its Discontents,” Charity, Philanthropy, and Civility in American History, Cambridge University Press 2003, p 19.

Implications for Kazakhstan Government cannot depend on Independent Sector (I.S.) to fund its social responsibilities (i.e. care for the poor or build roads) BUT, if independent of state influence, I.S. may be stimulated to provide extensive support of similar social objectives If I.S. is free from government control, individuals, corporations and foundations will be more likely to invest in I.S.

Acknowledgements This presentation draws heavily on Mark McGarvie’s chapter, “The Dartmouth Case and the Legal Design of Civil Society,” in Charity, Philanthropy, and Civility in American History, edited by Lawrence J. Friedman and Mark D. McGarvie, Cambridge University Press 2003, pp