Making a Graceful Exit

Alongside the trend of more and more donors “giving while living” to make an impact in their lifetimes, we are seeing more private foundations adopt spend-down strategies. Funders such as The Beldon Fund and The Atlantic Philanthropies are showing the field how to close down operations in a thoughtful way. Recently, Atlantic’s President and CEO Christopher Oechsli coauthored an article with me called “A Good Ending” (SSIR, Fall 2014), which shares lessons from the foundation’s wind-up process.

Program exits, or shifts away from specific fields of funding, are common—in fact they are inevitable. Times change, new leaders bring in different ideas, and humans are forever attracted to the next big thing. So the question is not whether foundations should periodically adjust their strategies, launch new initiatives, and exit existing program areas, but how to do it responsibly.

Whether exiting a funding area or completely closing down, most foundations are sensitive to the potential disruption that strategy change holds for grantees but unsure how to ease the transition and avoid sowing panic. Here we offer some practical suggestions for how foundations can prepare their grantees to weather major change.

Anticipate grantee needs.

Even if the foundation is not the principal source of a grantee’s funding, there is still much at stake. Grantees will miss the opportunity for future grants from an established partner and perhaps lose a level of credibility conferred by their association with the foundation.

A grantee organization concerned with replacing lost funding may need to shift focus to fund development efforts, or restructure internally (downsizing administration or programs) or externally (pursuing a merger or another collaborative strategy).

A grantee looking to forge new relationships—perhaps with other funders, donors, or capacity builders—may need to pursue board development activities, develop and implement marketing or communications plans, or engage in business planning.

Foundations that understand this range of potential grantee needs and responses will be better equipped to formulate effective transition supports.

Understand the role of capacity building.

Offering capacity-building support is one of the most important ways a foundation can mitigate any damage its exit might cause grantees. For funders that already provide capacity-building or organizational-effectiveness assistance, this may not pose a great challenge. Others may wonder how to go about designing a capacity-building initiative.

We suggest three steps to developing an effective plan or initiative:

1. Establish the goal.

What is the end result the foundation wants to achieve by providing this support? Is it important that the same kind of support continues after it is gone, but from other sources? Or does it just want its grantees to survive the loss in funding, regardless of whether they continue a specific program or area of work? Does the foundation want to engage all affected grantees, just a subset of its highest performers, just the most fragile organizations, or just those most dependent on foundation support?

Once a foundation sorts out its intentions, it can begin to anticipate the range of interventions and level of resources needed.

For example, if a foundation decides to provide capacity-building support to only a handful of grantees, it can customize its approach and develop a tailored transition strategy for each grantee. If the number of affected grantees is relatively large, it might choose a tiered, cohort-based approach instead.

One way to do the latter is to extend a minimum standard of support to all affected grantees, with more-customized elements for select subsets. For example, all grantees might receive two years of transition funding, but the foundation might invite a smaller group to participate in a workshop series covering topics such as strategic planning or fund development. A few grantees might get these options, plus individualized consulting assistance to help them review and update their business model, strengthen their board, or negotiate a merger.

The Beldon Fund is a good example of this kind of support. The fund chose to implement a capacity-building approach that focused on helping grantees diversify their sources of funding. The structured program began with a three-day intensive training, followed by additional national and regional trainings and peer-learning opportunities. A select group of organizations also received funding to implement their fund development plans.

By the end of the initiative, only a few grantees had successfully replaced the lost funding, but most made significant strides in increasing individual donor contributions and funds from other sources. This assistance also helped grantees improve data management, donor communications, and board engagement around fundraising, putting them in a stronger position to survive and thrive without the fund’s support.

2. Listen to grantee needs and interests.

Capacity building is effective only with active participation from the organizations involved. Foundations considering a capacity-building approach should engage grantees in dialogue about their needs and structure the initiative to optimally address these needs. For example, many grantees will say their biggest challenge is getting their boards to raise more money. In response, the foundation could suggest a board assessment as a first step. The assessment may well uncover upstream reasons for the board’s failure to meet its fundraising goals, such as an unclear organizational strategy or even a lack of confidence in management. But by beginning with the grantee’s own formulation of the challenge, the foundation or consultant partner can open up a larger conversation about where the issue really lies.

The S.D. Bechtel, Jr. Foundation offers a good example of involving grantees in planning. In 2008, the foundation made the decision to spend down the majority of its assets by 2016. It has committed to strengthening organizations working in four specific fields of interest through targeted investments in nonprofit capacity building through 2020. It developed this capacity-building approach in partnership with nonprofits and other stakeholders.

Capacity building focuses on strengthening organizational leadership and increasing impact. By providing core support and capacity-building resources, Bechtel seeks to catalyze projects and partnerships that will endure.

Armed with an understanding of the grantee’s needs and interests, the foundation can guide grantees to trusted resources, make introductions to and broker relationships with capacity builders, and help the capacity builder better understand the context of the foundation’s goals and exit strategy.

3. Plan, execute, assess, and refine.

Often, it can take an organization two years or more to replace lost funds, or develop and execute a restructuring strategy that sets it on a path toward sustainability. Of course, the longer the grantee has to prepare, the better. To launch a capacity-building initiative, foundations will need to set goals, choose strategies, create a budget, and develop a timeline for execution. But over the course of the initiative (which may last years), funders should also continually assess, manage, and make adjustments as necessary until the transition is complete.

The AVI CHAI Foundation provides a good example of this kind of learning and adapting. The foundation initiated a 15-year spend-down plan in 2005. In 2009, it started to provide grantee capacity-building support. A report on the first couple years of this effort revealed that “the skills required for this kind of work are considerably different” from those required for administering program grants, and that it often demanded more time and attention from foundation staff.

Two years later, a follow-up report noted that capacity-building assistance helped or would help a growing number of grantees enhance their sustainability post-transition. However, interviews with foundation staff revealed some challenges of capacity building, especially with small or vulnerable organizations: It can take several years to see results, and “even then, patience is sometimes rewarded with failure.”

Given this, foundations need to assess the level of investment they are willing to make in each grantee, consider any necessary adjustments, and proceed in the knowledge that not every organization will achieve equal success.

Be mindful of internal challenges.

Finally, it is important to recognize that the foundation staff members guiding a transition often find themselves in an awkward position. They may have devoted years to developing expertise in a program area that the foundation is exiting. Or their jobs may be at risk as the foundation pivots to a new strategy or prepares for closure. They will be managing their own anxiety about the change while supporting grantees, with whom they may have formed close working relationships over time. This demands a great deal of foundation staff, and should be as much a part of transition planning as how to transition grantees.

Read more stories by David La Piana.