Magazine Extras (Fall 2014)
Supplement to the article “A Good Ending.”
We usually think of large private foundations (those with assets of more than $1 billion) as permanent endowments. Names like Ford, Carnegie, Rockefeller, and Packard summon the image of a donor whose vision—and wealth—lasts well beyond his or her lifetime. But a countervailing trend is emerging. Many prospective philanthropists and established foundations are now considering or actively pursuing a limited-life strategy. They are, in other words, planning to close at some future date.
Researchers at the Sanford School of Public Policy at Duke University have identified 45 foundations that have completed an intentional spend-down, along with 29 other foundations that plan to follow such a course. Several factors are contributing to the rising interest in a limited-life model. First, many donors today want to see their philanthropic vision carried out in their lifetime. Second, many of them want to tackle big problems that cry out for large-scale, resource-intensive solutions. And third, there is a growing disillusionment with the slow pace and the bureaucratization of many perpetual foundations.
The concept of a limited-life foundation is not entirely new. Ben Franklin set a precedent for this approach when he stipulated in a bequest that his assets were to be used to support apprentice tradesmen for a period of 200 years—until 1990, at which point the remaining funds would go to communities in his home states of Massachusetts and Pennsylvania. The Rosenwald Foundation, founded by Sears, Roebuck & Company executive Julius Rosenwald, intentionally disbursed its entire endowment shortly after the death of its donor. More recently, Bill and Melinda Gates announced that their $36.8 billion foundation would close 20 years after both of them have died.
Then there is the Atlantic Philanthropies, which one of us (Oechsli) leads and for which the other (La Piana) serves as an adviser. Atlantic plans to complete all of its grantmaking by the end of 2016 and to close its doors entirely not long thereafter.
Chuck Feeney, founding chair of the Atlantic Philanthropies, earned a fortune from the sale of his company, Duty Free Shopping (along with investments in the General Atlantic Group), and donated most of that fortune to the foundation. As the size of the Atlantic Philanthropies endowment grew, he developed a commitment to the ideal of “giving while living.” In 2002, he and the Atlantic board formally adopted a limited-life strategy.
To date, Atlantic is the largest foundation ever to plan for a complete closure. By the time it closes, Atlantic will have made charitable commitments of more than $7.5 billion. In keeping with its limited-life strategy, the foundation has purposely made grants in excess of endowment returns. Today, its assets are valued at $2.2 billion, nearly one-third of which has already been committed to grantees. For the next couple of years, we will retain programmatic and contingency reserves, and we will oversee our final grants. Then, in about 2018, we will dissolve the foundation.
As we wind up our grantmaking and wind down the organization, we know that we have much to learn. But we have already learned some lessons that we wish to share. Here, we offer a practical resource aimed at helping colleagues who are considering or already implementing a limited-life strategy.
Your assets | Making several billion dollars worth of effective grants over a defined period is no easy task. One option, of course, is to liquidate everything years in advance of shutting down and to spend against a predictably declining cash account. In that scenario, however, you risk forgoing a great deal of investment income that could support your work.
At Atlantic, we created a large investment reserve that allows us to maximize the impact of our culminating work. Within a framework that we call Global Opportunities and Leverage, or GOAL, we are making several large final grants that reflect—but also go beyond—many of our prior philanthropic investments. We have also created other reserve funds that will provide a hedge against legal liabilities, and those funds will enable us to end with a small cash balance.
Chuck Feeney has said he’d like to bounce the last check that we write in order to show that the foundation really has spent down all of its assets. Joking aside, though, here’s how we envision the foundation’s last day: Sometime between 2018 and 2020, an attorney in Bermuda (where we are incorporated) opens a desk drawer, pulls out our file, and sees that there are no outstanding liabilities. She also sees that there are several million dollars left in our bank account and writes checks to a list of final beneficiaries. Then she tears up the checkbook and closes the file.
Your grantees | A major funder is likely to have large investments in many nonprofit organizations, and those nonprofits may not be prepared for a sizable loss of revenue. A variety of strategies are available to keep grantees from going out of business: endowing organizations, paying off mortgages or other debt, investing in enhanced organizational capacity, and so forth. Another option is to encourage grantees to consolidate operations or to share back-office functions. A third option is to help a grantee organization recognize that, like Atlantic, it can achieve its mission most effectively by pursuing a limited-life strategy.
The most important tool, in our view, is each grantee’s multi-year budget projection. Atlantic works closely with certain grantees to help them use that tool: What will life be like at their organization without Atlantic funding? What does their path to sustainability look like?
Managing this transition requires frequent, consistent communication with grantees. We have built our exchanges with grantee leaders on a commitment to clarity and on a belief that even bad news will be manageable if we provide plenty of notice about our plans.
Your staff | In a limited-life foundation, everyone recognizes that the enterprise will end at a certain point. The duration of roles for each employee will vary, however. Our approach at Atlantic has been to provide everyone with a roadmap that clearly indicates his or her final day at the foundation. Many employees, of course, will start to look for another job well before that final day. That’s where retention bonuses come into play: By giving your most important employees a financial incentive to stay until their end date, you can ease their transition and also promote organizational stability. At Atlantic, we’ve followed that course with all of our employees.
Even when each staff member knows his or her trajectory, speculation and anxiety can be prevalent. To limit that problem, we decided to cluster staff reductions in regular six-month cycles. That way, our people can breathe easier between rounds of departures.
Your leadership | Foundation leaders are usually charged with growing their organization. The limited-life strategy requires leaders to focus instead on deepening and magnifying the impact of an organization even as it shrinks. Not all managers will have the skills or the attitude needed to lead that sometimes contradictory process.
The limited-life strategy requires leaders to focus on deepening and magnifying the impact of an organization even as it shrinks.
CEO leadership, in particular, will be quite different in the final years of a foundation’s life span from what it was in earlier years. The CEO of a large foundation often delegates day-to-day functions to senior managers while focusing on big-picture strategy. But what happens when the strategic questions are settled and the foundation enters its final phase? At that point, we have found, a CEO has three primary tasks: ensuring sound execution, keeping staff members engaged in their work even as their numbers shrink, and enhancing the legacy of the foundation.
The role of a foundation board also changes as an organization approaches its last years. At first, the board has a lot to do, as the foundation develops its final grantmaking strategy, plots out an investment trajectory, and oversees a plan for releasing staff members. Over time, though, it will make sense for the board to shrink, perhaps substantially. At Atlantic, we decreased the size of our board in 2012 from 11 directors to 7. Further attrition through term rotation will shrink the board to just 5 directors by the time our doors close.
Your legacy | All philanthropists aim to leave a legacy—to extend their influence into the future. Chuck Feeney puts it this way: “What will we have to show” for our work? One approach to promoting a legacy is to fund physical infrastructure. Another approach is to provide endowments or large general operating grants that will allow grantees to continue their programmatic work. Yet another approach (one that we are exploring) is to invest in the long-term development of human capital.
At Atlantic, we have funded our share of buildings. So far, we have invested more than $2.2 billion in more than 500 significant facilities, including hospitals and clinics as well as educational, research, and cultural institutions. But we have also backed major social change efforts, such as the development of a national health system in Vietnam, the peace and reconciliation processes in Northern Ireland and South Africa, and the reform of US immigration, criminal justice, and health policies.
For us, everything now comes down to ensuring our legacy. That means continuing to make big bets on transformational opportunities—big bets whose impact will endure beyond the existence of our foundation. It also means helping other foundations learn the art of ending well.