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Life Health > Life Insurance

9 Facets of Limited-Life Foundations’ Plan to Spend Down

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The concept of limited-life foundations has been around for a long time, and has attracted interest in recent years with some brand-name foundation wind-downs, according a new report by the Center for Effective Philanthropy.

However, many foundations are uncertain about spending down, which prompted CEP to examine why limited-life foundations do so, what decisions are involved and what challenges they face.

The research was supported by the S. D. Bechtel Jr. Foundation, itself a foundation spending down by 2020, the CEP said.

In 2016, the multibillion-dollar Atlantic Philanthropies made its final grants, according to the report, and the billion-dollar Edna McConnell Clark Foundation said it would spend down within the next decade.

Moreover, a growing number of wealthy donors have signed onto the Giving Pledge, committing to spending the majority of their wealth “during their lifetime or in their will.”

For its study, CEP interviewed leaders of 11 foundations that planned to take down their shingle within the next 10 years. The interviews touched on nine aspects of their foundations’ spend down:

1. Why Spend Down

Foundation leaders most frequently cited a desire to have a greater impact. In many cases, the organizations’ donors wanted to see more impact during their lifetime on the issues that mattered most to them. After deciding to spend down, many leaders said they had experienced a sense of focus and urgency to be strategic.

2. Investing

When trying to figure out how to align their investment practices with their spend-down plans, some leaders faced the challenge of spending at the rate for which they had planned. Others focused on striking a balance between risk/return and predictability. Still others changed the extent to which their financial investments were aligned with their foundation’s mission.

3. Staffing

In some instances, foundations increased the number of staff before ramping down. In others, they maintained staff levels or hired consultants to supplement existing staff.

Besides affecting staff size, the spend-down decision influenced whom the foundations hired, with some taking on people with experience and others looking for program staff willing to implement rather than create strategies.

The CEP report noted that limited-life foundations have the task of keeping staff motivated about the work and retaining them as the spend-out date approaches. It said the foundation leaders interviewed were giving careful thought to the “offboarding” of staff; a number of foundations planned to offer generous severance arrangements.

4. Grantmaking and Strategy

Some limited-life foundations in the study have narrowed their grantmaking focus, which has required their leaders to make tough decisions not to renew funding for some grantees. At the same time, they want to leave grantees in a strong position to continue their work after the foundation has closed its doors, grantees’ success being a vital part of their foundation’s legacy. Providing flexible or longer-term grants is one way to do this.

5. What Foundations Owe Their Grantees

Several leaders said their responsibility was to “do no harm” to grantees while leaving. Beyond that, some leaders hoped their foundations could leave grantees better off by equipping them to be resilient. Others stressed the importance of being cognizant of power dynamics and being transparent — practices not specific to spending down.

6. Collaborations

Some leaders said they were putting more energy into seeking collaborations with other funders as a result of the decision to spend down.

7. Communications

To help grantees prepare for a loss of funding, most leaders in the study said they strove to communicate their spend-down decisions and timelines with grantees in a direct, transparent and timely way.

8. Evaluation

Some limited-life foundations interviewed said they had increased their emphasis on evaluation, while others have targeted their evaluation efforts toward specific programs or grants. A few said they were uncertain how relevant evaluation was given their limited life.

9. Archiving Knowledge

Most leaders in the study said they wanted to preserve the knowledge their foundations had gathered. However, interviewers could not identify a clear point in the spend-down process when these foundations worked to solidify their plans for archiving knowledge, nor one common way they were approaching archiving.

— Check out Few Big Foundations Exceed Required Distribution Minimum on ThinkAdvisor.


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