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Portrait of Prof. Burgard in front of two bookshelves in his office (Photo: Jana Dünnhaupt / University of Magdeburg)
12.12.2023 from 
Research + Transfer
From Bertelsmann to product testing

Their names are Bosch, Volkswagen or Bertelsmann and they often have millions in assets: today there are over 25,000 foundations in Germany. They run museums and social institutions, give out schoolbooks, protect forests or fund scientific projects. Like what is possibly the best known foundation in Germany, the Stiftung Warentest consumer organization, they mainly serve the common good. But why do we even have foundations, what are the benefits for donors and society and how was the reform of German foundation law accomplished? Katharina Vorwerk discussed the influence of jurisprudence on policy with the law professor Dr. Ulrich Burgard from the Chair of Civil Law, Commercial and Business Law at the University of Magdeburg.

Foundations use a defined sum of money for a purpose specified by the donor in such a way that the money lasts as long as possible. Is that a good summary of the concept?

Yes and no. First of all, it isn’t always only money or financial instruments that are endowed, often it is equity holdings, hospitals such as the Pfeiffersche Stiftungen in Magdeburg or museums like the Städel in Frankfurt. Secondly, not only are there “foundations in perpetuity”, whose assets must be preserved and who fulfill their purpose with the use of these assets, but also foundations that exist only for a limited time within which their assets must be used. Thirdly it doesn’t quite express the actual distinctiveness of the foundation: which is, namely, the only legal entity under private law that has no members. In the case of associations, the founding members specify their purpose. When it comes to a foundation, the donors do this. An association’s members can always amend its purpose afterwards. In contrast, the purpose of the foundation is fundamentally unalterable; this is because once it has been established, the donor does not become a member of “his” foundation, but instead has a third party relationship to it. Consequently, whilst an association or society carries out the current wishes of the members, the foundation fulfills the historic wishes of the donors.

Many of the foundations still operating today are more than 500 years old, for example the Damenstift Quedlinburg or the Franckeschen Stiftungen in Halle. Has the role of the foundations changed over the centuries?

In the first instance we need to be aware that there are not just foundations established under private law, but also foundations established under ecclesiastical law and public law foundations, such as the Stiftung Preussischer Kulturbesitz. In the past, the ecclesiastical foundations clearly dominated, because many foundations were ultimately established to shorten the time that somebody believed they would have to spend in purgatory. Today, still, there are thousands of so-called parish funds in Germany that previously were used to maintain parsonages. Foundations governed by private law frequently had a religious connection. First and foremost, the aforementioned Franckeschen Stiftungen were set up to support the religious education of their pupils. And the Damenstift Quedlinburg was dedicated to the commemoration of Heinrich I, even though its practical purpose consisted of providing for unmarried noblewomen and widows. Present day foundations mainly do not have a religious connection. Nevertheless, modern-day donors also want to do “good”. Ninety-five percent of all foundations governed by private law are charitable. Overall they support the common good to the tune of an estimated five billion euros per year. We do not have precise details, as foundations do not have to publish their figures. Unfortunately, the new legislation governing foundations has changed nothing in this respect.

In regional terms, in Germany foundations are distributed extremely unevenly: whilst in North Rhine Westphalia there are over 4,600, in Saxony-Anhalt there are only 340 foundations. Why, and what are the consequences?

In the past 200 years there have been three major declines in the numbers of foundations: the first as a result of the Imperial Recess of 1803 following which the large ecclesiastical territories were dissolved. The “Kaiserlich freie weltliche Reichsstift Quedlinburg” that you mentioned was among those that fell victim to this. The second was the rampant inflation between 1914 and 1923. And the third was after 1949 in the GDR because the communist system suppressed civic involvement in the form of foundations. To the present day, the new Länder have not recovered from this decline in the number of foundations. The number of new foundations is below the level in the old Länder because endowing foundations requires assets and in the past thirty years, of course, fewer assets have been built up here than have been there over the past 75 years. The consequences are hard to estimate, not least because after all, civic involvement is reflected not only in the 25,000-plus foundations, but above all in the over 600,000 associations. And the density of associations tends to be greater in the new Länder: where nationwide there are around seven associations per 1000 inhabitants, in Saxony-Anhalt, for example, there are nine.

New foundation legislation came into force on July 1st of this year. What, specifically, was going wrong that meant reform was necessary?

Actually nothing at all went wrong, except for the “reform” itself. It was written by civil servants for civil servants. Academic expertise and practical experience were largely ignored. In particular, the aim of the revised law was to standardize foundation legislation. In this regard it is important to know that not only is foundation law set out in §§ 80 to 88 of the German Civil Code (BGB) but that each federal state also has its own foundation legislation. The reason for this is that foundations are subject to state supervision to offset their lack of members. However, not only are supervisory matters regulated in the foundation legislation of the individual states, but also genuinely civil matters. But now only foundation civil law has been standardized and not foundation supervisory law. And the new foundation civil law is in many places poorly crafted. As a result, for users a great deal has become more complicated instead of simpler. In addition, the law does not even claim to be a reform law. In fact, it contains little that is new and hardly improves anything.

What consequences will the reform have for society, donors and the recipients of foundation benefits?

For society, the “reform” has consequences inasmuch as prudent individuals wishing to make donations will increasingly look for alternative legal forms at home and abroad that better match their requirements. Donors who have already set up “their” foundations will, in contrast, not feel the effects of the “reform” because, after all, once they have set up “their” foundations, in principle they no longer have anything to do with them. The only exception is if they appoint themselves a member of a foundation body, for example the board. Then they will have to deal with the “reform” in the same way as any other body member. They will notice then, for example, that the duty of care requirements have increased. For the recipients of foundation payments - the so-called beneficiaries - nothing will change.

How does Germany stand in comparison with other countries as far as foundations are concerned?

If we only look at the number of foundations and the amounts that they disburse, Germany is in a good position. If we look at the law, we can answer the question in practical and theoretical terms. Theoretically the prevailing foundation law leaves a lot to be desired. In practical terms, it is as is usually the case: all legal forms are “legal costumes”. In the same way as we seldom wear the same outfit for every occasion, the “legal costume” is not always suitable for every need. First of all, therefore, it is important to carefully analyze what it is exactly that the donor wants, and not only in his lifetime, but also after his death and after the death of the next generation and the one after that. And then one has to look for the right “legal costume” or for a “legal costume” that can be adapted to meet the needs of the donor. For example, Bosch is in fact not a foundation, but a non-profit private limited company. Disadvantages of German foundation legislation from the point of view of many donors are the mandatory - although ineffective - foundation supervision and the lack of flexibility for the donor with regard to statutes once the foundation has been set up. Changing the latter is one of the most important areas for reform today, which unfortunately has not been actioned. Anyone who is bothered by this can either choose another legal form in Germany or migrate abroad, but they will “pay” for this with other disadvantages.

Do legal scholars have no influence on policy and industry?

It depends on whether we are asked. Changing anything through individual conversations with politicians generally has no prospect of success. There are many reasons for this. In particular, elected officials have no time to examine such subjects more closely. And since they do not have a thorough understanding of most topics, in the end they only make decisions about the objectives that a law should have. Whether and how the law achieves these aims, for the most part is beyond their understanding. In this respect they place blind trust in the authors of the law, that is in the civil servants who have formulated the law. Bad mistakes have already happened, the worst being in the so-called “statute of limitations scandal”, which Ferdinand von Schirach articulated in literary form in the book “The Collini Case”.

It is similar in industry. In reality, the lack of understanding of legal matters that are key for entrepreneurs’ own companies is widespread. And it is no wonder that this is the case given the shortage of time and the constantly accelerating developments in the law. In this connection, the recent legislation, especially in the area of Environmental Social Governance (ESG) is downright perfidious, in that it unceremoniously shifts political responsibilities, for example in the area of implementing human rights abroad, onto corporations. In the field of ESG, many companies fear that they will be unable to satisfy the legal requirements because they lack qualified personnel.

If, however, legal scholars were to be asked, they could have a major influence. For example, for many years I helped shape the rulebook for the Berlin Stock Exchange. And the attempted mergers of the Deutsche Börse AG with the New York Stock Exchange (NYSE) in 2011 and the London Stock Exchange (LSE) in 2016 failed as a result, among other reasons, of my advisory opinion. In the former case in particular, the mood among the general public and politicians was turned on its head by the report, so that in the second case there was very little left to do.

You are also breaking down academic barriers with your legal research, and influencing society from academia with your ideas. Two worlds, or two sides of the same coin?

Scholarship should communicate. In this respect I have a strong need to communicate because I believe - whether correctly or not I leave it to others to judge - that I really have something to say. For this reason, I always try to write in such a way that, as they say, “an educated layperson” can understand what I have written and maybe even every now and then will enjoy reading it. Having said that, legal scholars primarily write for practitioners - or should do, at least. After all, we do not just want to be read and understood by colleagues, but above all by judges, lawyers, corporate counsels, government officials and laypersons. I am sure it is different in other disciplines. For instance, science journalists are often needed as translators.


Prof. Burgard, thank you for the interview!


About Prof. Burgard

Professor Dr. Ulrich Burgard holds the Chair in Civil Law, Commercial and Business Law, Law and Economics in the Faculty of Economics & Management at Otto von Guericke University Magdeburg. The qualified lawyer is Director of the Research Center for Savings Bank Development, member of the Berlin Stock Exchange council and is also active on the Scientific Advisory Board of the “Stiftung für die Wissenschaft” (Science Foundation) and on the Advisory Committee of the Center for Corporate Compliance at the EBS Law School. His main areas of research are in the fields of commercial and corporate law, including foundation law, and banking and capital market law. Moreover, as a lecturer, he also covers civil law and fundamental aspects of economic legislation.

Author: Katharina Vorwerk
Source: GUERICKE ´23
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