Why on Earth Would a Foundation Try to Get Rid of All of Its Money?
Resource type: News
Gara LaMarche |
The aspect of The Atlantic Philanthropies in which people have the most interest is not that we are one of the largest foundations in the world – in fact, the largest private funder in the countries in which we operate, outside of the U.S. – or that we have a legal status that permits us to be extensive and vigorous funders of advocacy, nor that we take a comprehensive approach to evaluation and have, somewhat rare for our field, an in-house unit for carrying it out. Instead, what is most fascinating to observers is that our board is committed to spending our more than $3 billion endowment and ending the foundation as we know it in the next eight years. By the time we are done, we will be the largest spend-down foundation in history.
“Why on earth,” people ask, “Would you want to get rid of all that money?”
The financial market has in the last few months done a very good job of helping Atlantic get closer to zero, and it is suddenly a different and stranger climate in which to be talking about spending all our assets. In recent weeks several of our colleague foundations have literally gone out of business, involuntarily and with terrible impact on grantees left struggling to deal with the effects of cancelled payments. (Among our responses to this crisis, Atlantic and the Open Society Institute agreed to match emergency contributions made to four of the groups affected by the closure of the JEHT Foundation due to the Madoff scandal.) But Atlantic still has over three billion dollars left to spend, and yes, it is a weighty responsibility.
Why did Atlantic take this less-traveled route?
It started with our donor, Chuck Feeney, who believes strongly in a philosophy he calls “giving while living.” By the 1980s Feeney had already transferred virtually all of his wealth earned through the sale of Duty Free Shops to the foundation, and he has lived quite modestly since, owning no home or car. Feeney was heavily influenced by Andrew Carnegie’s Gospel of Wealth, and Carnegie’s belief that a man who dies wealthy dies disgraced. The Board decided in 2002 to spend down Atlantic’s assets and complete active grantmaking by 2016 and close its doors by 2020.
The notion of “giving while living” is that the world has many pressing problems, and if we can invest in solutions to those problems today, we will minimise the need to respond to them more urgently and less thoughtfully as crises in the future. That premise guided the selection of issues identified by the Atlantic board – Ageing, Disadvantaged Children & Youth, Reconciliation & Human Rights, and Population Health – but it could also be applied to other issues, like climate change.
The spend-down approach to philanthropy is just beginning to receive scholarly attention, and Atlantic has supported a few research initiatives that are underway, one by the Urban Institute and the other by the Aspen Institute. We also participate in a few oral history and documentation projects focusing on our choices and process. The leading historical model for spending down is the Julius Rosenwald Foundation, established in 1917, not long after Carnegie and Rockefeller, by the owner and President of Sears Roebuck. Rosenwald felt that endowments were often created by well-meaning donors for purposes whose significance waned over time, such as orphan asylums, which even by Rosenwald’s day had come to be seen as outmoded institutions.
Julius Rosenwald also had an activist bent, and an aversion to bureaucracy characteristic of visionary living donors and wrote to his board that:
“I am not in sympathy with … perpetuating endowment and believe that more good can be accomplished by expending funds as trustees find opportunities for constructive work than by storing a large sum or money for long periods of time. By adopting the policy of using the fund within this generation, we may avoid these tendencies toward bureaucracy and a formal or perfunctory attitude toward the work which almost invariably develops in organisations which prolong their existences indefinitely. Coming generations can be relied upon to provide for their own needs as they arise.” *
While Rosenwald played a large role at a number of public schools, colleges and universities and a number of Jewish charities, perhaps his biggest legacy is in the construction of schools serving rural African-Americans in 15 southern states and the strengthening of key black institutions of higher education. He also created 1,000 scholarships and fellowships for African-American students. The human capital energised by this generosity is incalculable. But because Julius Rosenwald cared little about the credit, and did not leave behind a perpetual foundation bearing his name, his impact is much less well known than that of the Carnegies, Rockefellers and Fords. That may be one reason, perhaps, why the spend-down course is not often followed, since ego is often not in short supply among the wealthy and successful.
Rosenwald is the largest example of a spend-down foundation, but there are others, and Atlantic is trying to learn from their experiences. The Aaron Diamond Foundation spent its assets in the 1980s and 1990s on a set of focused initiatives, leaving at least two significant legacies: an AIDS research center headed by Dr. David Ho, who was named Time’s Man of the Year in 1996 for his critical role in creating anti-retroviral therapy; and a set of successful small high schools in New York City, which led the way for a broader school reform effort eventually joined in by Gates, Carnegie and OSI and institutionalised in New York and elsewhere.
Vinny McGee, who led the foundation, now works for Atlantic and is a tremendous resource for our spend-down process. We also just hired Bill Roberts, the longtime leader of the other most prominent and effective spend-down foundation, The Beldon Fund, which over ten years concluding in 2008 was a major force in creating state organising capacity for environmental protection. Roberts’ experience will also be helpful to us, since he knows first-hand how difficult it is to implement and complete a spend down plan. “To get a clear, focused, staffed strategy humming in less than two years is optimistic,” Roberts told “Beyond Five Percent,” a recent publication of Northern California Grantmakers and the New York Regional Association of Grantmakers. “Then you’re on the street, looking for grants to make, explaining the strategy, which can take another year or two. All pistons don’t fire until year three or four. Then you make a mid-course correction in year five or six, so now you have maybe three years where you’re at full tilt – the sweet spot.”
Of course, there are a number of avenues available to foundations between preserving themselves forever and going out of business. Both The Charles E. Culpepper Foundation and Raymond C. Smith Foundation Fund, for example, were merged into other foundations. The HKH Foundation established flexible payout rates so the foundation could rise to opportunities that called for stepped-up spending, such as increasing its giving by a third to promote civic engagement before the 2004 elections, in the same spirit that Atlantic and OSI have announced plans to spend tens of millions of dollars to take advantage of the enormous policy opportunities presented by the new Obama Administration.
Spending down your assets is not for everyone, and we understand that most foundations will probably not choose to follow us. Yet we hope to provide advice and examples to those who are considering the path we have taken and to the philanthropists who follow. Despite the current economic distress, it is safe to predict that significant new sources of philanthropic wealth will come into the picture just as they have in the past twenty years. While perpetual foundations like Ford, Carnegie, Rockefeller continue to play extremely significant roles on the philanthropic scene, a number of today’s largest and most talked-about foundations – like Gates, the Open Society Institute; the Google and Omidyar Foundations; and Atlantic itself – did not exist a few decades ago. Some, like Atlantic, will disappear, but others not yet born will emerge and become leaders and innovators who, as Rosenwald wrote, “can provide for their own needs as they arise.”
The decision to spend down The Atlantic Philanthropies impacts our work in three principal areas: investments, human resources, and programme. Atlantic’s investment team has the unusual challenge of managing our funds to maximise the return on our assets while we work steadily to reduce them. The grant commitment target has been set so as to be challenging, but achievable, and we hope to increase the commitment rate over time if returns are good, and to spend more conservatively when conditions are challenging – as at the current moment.
When I joined Atlantic in 2007, I was pleased to find a good plan in place for retaining key staff to carry out the work of the foundation until the end, and dealing with them fairly. Should Atlantic face gaps in staff capacity in the final years, we could attract the necessary talent by tapping accomplished people seeking “encore” careers, or from young people who would see spending a few years at Atlantic as a valuable opportunity, academics and other professionals who could come to us on leave or private-sector consultants seconded to us for a time.
On the programme side, Atlantic is now concluding a months-long process of what Roberts called a “mid-course correction,” and there are two key results of that which may at first seem contradictory, but which I think are in fact complementary. (I’ll be writing more about the results of this process in the months to come.) The first is to take what was already a pretty focused foundation, with clear strategic objectives in four programme areas and seven geographies, and make it even more focused. The second is to shift more money to a “Venture Fund” to allow us to move quickly to take advantage of short-term opportunities, particularly in the policy realm, which is, to use Bill Roberts’ phrase, our “sweet spot.” You might call it strategic opportunism, and it has permitted us to make the largest-ever grant for advocacy to the health care coalition Health Care for America Now, which is now poised to work with the new President to repair the largest gap in the U.S. social safety net.
If there is another shift in Atlantic as we enter the last eight years or so of our grantmaking, it is that we have considered what legacy means and come up with a somewhat different answer than when we first thought about it some years ago. Originally we thought that our limited lifetime obligated us to focus only on issues that had a reasonable chance of success within that span – not ending poverty, for instance, but abolishing the death penalty or strengthening indigent defense systems in three selected U.S. states. This had the virtue of specificity and up or down measurability, but policy successes can come and go. What is enduring, though, is the strengthening of institutions and the building of leadership that will be strong and able to take on the challenges of human rights or disadvantaged youth or public health or aging long after today’s fleeting policy battles, and long after Atlantic is gone. By operating within an explicit framework of promoting social justice in all we do, Atlantic will deepen the already significant commitment it has to building the capacity of key institutions and movements in the fields we have chosen to focus on.
Mark Twain famously said, of the prospect of death by hanging, that it “powerfully concentrates the mind,” and that is surely true for the death of an endowment. But that seems a dark way to think about it, for what I have found most true is that the challenge is fun, indeed, liberating. So instead I remember the words of my friend Lewis Cullman, a vigorous patron of arts, education, democracy and human rights who with his wife Dorothy is busily spending their fortune on philanthropy. “I don’t care what people say about me when I’m dead,” Lewis says, “I won’t be around to hear it. Why not get the joy out of spending your money while you’re alive?”
This column was adapted from remarks given at the Delaware Valley Grantmakers Annual Meeting on January 8, 2009. Read the complete remarks here.
Gara LaMarche
Links to organisations mentioned in this column:
* Peter M. Ascoli, Julius Rosenwald: The Man Who Built Sears, Roebuck And Advanced the Cause of Black Education in the American South. Indiana University Press. May 2006.