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“A Spend-out Approach to Philanthropy”

Resource type: Speech

Colin McCrea |

Colin McCrea addresses the challenges and rewards of Atlantic’s approach to philanthropy at the Institute of Philanthropy’s recent conference in London.


All of us involved in philanthropy would like to see more people giving more money in a more thoughtful way.  There is no one way that is right for philanthropic foundations to operate.  All types of philanthropic giving are welcome and the important issue is for more funds to be channelled to more foundations.  Atlantic Philanthropies has made the calculation that it can create more impact by becoming a spend-out foundation.  Our calculation is that if we spend more money more quickly on a small number of areas we are more likely to be successful than by spreading our money in smaller amounts over a longer period of time.

There is no one right approach to giving and a spend-out is just one option, but one that we think is worth considering.  It has excitement and fears, opportunities and difficulties, and by 2016, when Atlantic has spent out its remaining endowment of $3 billion it will have been the largest foundation ever to do so.  We are conscious of this and are going to some lengths to cataloguing the ups and downs, the steps that we take, and evaluating our work so that others can learn from the success and failures of our approach.

Why did Atlantic choose this Course?
When our founder, Chuck Feeney, became wealthy he became troubled by the implications of that wealth on himself and on his family.  I don’t think he ever had much regard for money itself but had a fascination in making it.  But once he had it he had little interest in the trappings of wealth.  He was greatly influenced by Andrew Carnegie’s Gospel of Wealth – the one which says he who dies rich dies disgraced.  He also bought into Carnegie’s view that those who made money were well suited to giving it away with impact.

The decision to be a spend-out trust wasn’t formally taken until 2002.  However, it was always in his mind to operate in this way without ever being formalised.  In fact, he used to complain that he was kept awake at night knowing that, despite giving away hundreds of millions of dollars each year, the foundation’s assets were actually increasing.  In 2002, in a rare note to the board of the Atlantic Foundation, he wrote “people of substantial wealth create potential problems for future generations unless they accept responsibility to use their wealth during their lifetimes to better society”.

When the decision was formally taken to be a spend-out foundation it had profound implications in a number of areas which I will detail later.  Among those was choosing areas to focus on where results could be achieved within the lifetime of the foundation.  It also meant that the management of the endowment had to be changed so that there was sufficient money and sufficient liquidity during the remaining life of the foundation.  In addition, there were serious human resources implications.

There are advantages and disadvantages of being a spend-out foundation and I would like to mention just a few of those.

Advantages of a Spend-Out Foundation
Being a spend-out foundation means that you can focus on tackling and trying to eliminate today’s problems today.  Identifying problems and tackling them today is better than tackling them tomorrow.  Good today is better than good tomorrow.  There are many pressing problems in the world and we chose ones where we felt we could make an impact during the life of the foundation.  Central to the spend-out was to allocate enough money to those problems today in order to eliminate them or strengthen the relevant institutions so that they can tackle the problems after we have closed.

One of the great attractions of being a spend-out foundation is that it gives you great freedom to operate.  Having identified a problem and the amount of money that is needed to bring about the desired change, one can devote sufficient money to those issues to actually solve the problem without being hampered by the desire to preserve the endowment.  A recent example of this was the decision to spend $24 million on advocacy to help change health care policy in the United States.  Similarly, a few years ago, we were able to provide sufficient funds to our grantees to advocate to the Supreme Court in the United States to change the Juvenile Death Policy.  It’s only fair to point out also that we devoted significant money to trying to bring about immigration reform in the United States, which has not succeeded, to date at least.  Although Atlantic had not yet formally taken a decision to be a spend-out foundation, in the late 1990s the mood of the organisation was in a spend-out mode.  In the Republic of Ireland we were able to allocate €200 million in order to work in partnership with the Irish government to demonstrate the value of changing its policy to university research.  I should also point out that the Irish government has since allocated €1 billion to this programme.

Another attraction to being a spend-out foundation is that it enables us to be faithful to the mission of our founder.  Having a living founder actively engaged in the foundation’s work has two great advantages.  It means that the founder can gain satisfaction from seeing the results of the philanthropic spending.  As Chuck Feeney says, “you will derive more fun from giving when you are alive than when you are dead”.  It also has the great attraction to the founder as he or she can see that the money is being allocated to areas that are of interest.

Being a spend-out foundation also can help avoid bureaucracy because it gives urgency and focus to the work and raises questions of effectiveness and results.  But, like hanging in the morning it focuses the mind.  You do not have the luxury of thinking that if you make a mistake now it can be rectified later.  When the money is gone it’s gone and this places a burden of responsibility to get it right, and to do it quickly because the time is running out.

Spend-out foundations can be particularly attractive to the newly wealthy.  These are people who have made their money by their hard graft and are results orientated.  They want impact and to see it realised in their own lifetime.

Disadvantage of Perpetuity
Perpetuity is a hard concept to grasp.  Eternity is a long time.

It is hard to remain faithful to the mission of the founder in perpetuity.  Henry Ford set up the Ford Foundation and he was a conservative man.  Today, the Ford Foundation is among the leading progressive foundations and, although I am delighted with its change, I am sure that Henry Ford is turning in his grave at the thought of some of the activities the Ford Foundation is involved in, such as gay and lesbian rights.

The donor or founder, is oftentimes not in a position to appreciate the full outcome of their generosity as in many instances they have passed before the project has come to fruition.

A particular difficulty for perpetual foundations is that there can be a mismatch between the objective the organisation has set itself and the pay-out rate.  This is because protecting the endowment is a priority for perpetual foundations and this can result in insufficient money being allocated to achieve their objectives.  Chuck Feeney has often said that allocating insufficient funds to a project is futile; it will never solve the problem in its entirety

Some areas need a lot of action now or the situation will deteriorate through delays.  For example, if action is not taken now on climate change the situation will be appreciably harder to solve in later years.  Population control is another example.

Disadvantages of a Limited Life Foundation
It is only fair to also dedicate time to the disadvantages associated with being a spend-out foundation.  As I said before, there is no one right way.  But, if one chooses to be a spend-out foundation there are aspects that must be managed.  There is a pressure to spend the budget and therefore spend it unwisely.  Attention has to be paid to ensure that the focus is not on money out but on the best projects.  There should be no penalising of staff if they under spend the budget for a lack of good projects.

Spend-out foundations have to avoid long term issues.  For example, a spend-out foundation can’t seek to end world poverty.  Having said that Atlantic has taken the decision, for example in the human rights area, that as human rights problems will always be with us, our key focus is to strengthen institutions so that they can carry on the fight tackling tomorrow’s issues tomorrow after the foundation has closed.

The sustainability of organisations supported is a particular problem for spend-out foundations.  It is ineffective building up organisations to tackle problems tomorrow if they do not have sufficient funds to do so successfully.   This puts pressure on the recipients of grants because they have to identify alternative sources of funding at a level not previously experienced.  One of the things that we worry about, and spend a lot of our time acting on, is the problem of what happens when Atlantic funding is gone.  We frequently give our grants with matching funding conditions.  This is not to make it difficult for the organisation but rather to encourage other donors to support the organisation in the hope that they will continue funding it after Atlantic is gone.

In addition, there are two issues that need careful management – management of the endowment and human resources issues.

When Atlantic formally decided to become a spend-out foundation it had to alter its investment policy in a profound way.  We could no longer rely on areas such as equities which can provide substantial returns but are not predictable.  We have had to change our investment policy to ensure that we could pay our existing commitments, which amount to $700 million, and keep approving approximately $300 million on an annual basis.  There is a tension between maximising the return, so that there is sufficient money to give away, ensuring liquidity so that payments can be made at the appropriate time, and getting zero by the time we close, which in our case is 2016.

Because there is no long term future for staff the management of HR issues has to be carried out in a thoughtful way in order to be fair to staff and  also to the organisation.  Staff need to be persuaded and encouraged to stay until their mission is accomplished but at the same time to know that at that stage they will be parting company from the organisation.  Not everyone will stay with the organisation until the end and the timing of departures will be different.  This largely depends on the grant making strategy – will it be a steady state approval rate, will the bulk of the money be approved early on, winding down to virtually nothing at the end, or will it be phased so that there is a large among at the end?  If this is not made explicit, most staff will assume that they will remain until the end.  The grant making strategy will largely determine the staff that will remain.  Following the ending of approval of grants, there will be a period of administration where the grants are paid out and the organisation formally closed down.  In Atlantic’s case, we are focused on disseminating the lessons learned from spending-out so I could see a situation where evaluation and communication staff would remain as well as administrative staff.

I suspect that when people are considering establishing a foundation or seeking advice the default position is perpetuity.  There are few but growing examples of organisations that have decided to spend out and have done so successfully.  For example, the Gatsby Fund, one of the Sainsbury Foundations, is a spend-out foundation.  Similarly, the One Foundation in Ireland and of course Atlantic.

There are some examples of foundations that have already spent out.  The Aaron Diamond Foundation and the Beldon Fund both were spend-out foundations.  The Diamond Foundation focused on HIV AIDS and the Beldon Foundation on climate change.  The chief executives of both foundations now are on the Atlantic staff so that we can learn from their experiences.  But even the Bill and Melinda Gates Foundation is a spend-out foundation, although they fudge the issue in my opinion by deciding that the foundation will end 50 years after the last founder dies.

So, in conclusion, I would say that diversity is a hallmark of the foundation world but the spend-out is a growing option and worth considering.  Limited life is not for everyone but in Atlantic we hope that people will learn from our successes and our mistakes and consider it as one option when thinking of what path to follow.

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