For Sunsetting Foundations, a Limited Life but a Perpetual Contribution

 In Foundations, Fred's Blog, Fred's Blog, Money, Philanthropy

There was a time when families who were establishing private foundations rarely thought about an end to the foundation. They assumed what they had created would last (as intended) in perpetuity from generation to generation. What they discovered, as John D. Rockefeller observed years ago, is that “perpetuity is a very long time.”

I have been talking with families and executives lately about the growing number of private foundations deciding to “sunset” after a predetermined number of years. The primary reason for this is the concern about the mission and values of the foundation shifting away over time from the original intent of the donor. There are other reasons, like children not having an interest in the foundation or the assets dwindling, but these are secondary.

(The classic example of a foundation distorting donor intent is the Ford Foundation. However, a friend of mine, Curtis Meadows, challenged me to read the original charter of the foundation and then explain to him how the trustees had wandered from the intent. It turns out there is nothing in Henry Ford’s instructions that would give his successors any indication of his intent, and the trustees were free to do as much as they pleased. In other words, Henry Ford had every intention of the foundation being permanent, but with no well-defined donor intent.)

While the language used to describe the sunsetting process includes “spending down,” “liquidating,” or “closing the doors,” I would like to think of it another way. It’s not the way for everyone, but if I knew I was setting an end date, I would call it dissolution — but not in the way that term is normally used.

When salt dissolves, it is absorbed and assimilated into the body. About 40% of the sodium is contained in our bones and the balance in our blood. It becomes an integral part of the body, and long after we consume it, the effects remain as the sodium and chloride do their important work.

That is how I see the most important work of a foundation. If we do our work right, we will do more than invest in a community or make financial gifts that evaporate when we are no longer there. Rather, we dissolve and the things that are truly lasting — our values, our way of seeing opportunities, our relationships, our non-financial contributions — become a lasting part of the community in which we live.

We do not “go out of business.” The best parts of us are absorbed and used for years to come in the blood and bones of where we have worked. We have a perpetual contribution.

This is exactly what the Fourth Partner Foundation, where I served as chairman and president, did one year ago. After 20 years, the Board had a series of discussions about whether or not our work was finished. It was not a matter of diminishing funds, but a sense that our main role had been not only to fund new initiatives and support established organizations, but to find ways to encourage changes in attitudes in our community, as well.

For example, our community in Tyler, Texas has struggled with overcoming stereotypes and prejudice in the way that the Hispanic community is widely perceived. The Foundation worked with local Hispanic business owners and leaders to help create the Hispanic Business Alliance as part of the Chamber of Commerce. There are now more than 300 Hispanic entrepreneurs participating in the association, which, over time, has not only provided important support to help local Hispanic business owners succeed, but in doing so has also helped to counter the negative stereotypes that Hispanics have faced in our community.

When our Board looked back on this project and the multiple other ways we had encouraged change in our community, we turned toward the future and asked ourselves if we thought there were more opportunities to do the same. We decided that while there would always be opportunities, our lives and interests had changed, as well. Where we had once been the major funder and initiators of change there were other donors and nonprofits now working in the areas of our interests. While we were extremely satisfied with what had been accomplished, we knew our season was at a close and we had made our best contribution.

Moreover, after decades of working in one place, we discovered that we no longer needed the platform of a foundation to continue doing our work. We had built the relationships and trust that would allow our impact to continue, but without the structure.

So, yes, we closed our doors, but we did not see it as going out of business. Rather, the Foundation dissolved, distributing its remaining assets so that our work continues in the life of our community.

Fred’s blog today was originally written for The Center for Effective Philanthropy and is reposted with their permission.

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    Walter Hansen
    Reply

    Thanks, Fred! After our foundation dissolved into the blood and bones of our partners, we enjoy meeting with them and hearing reports of their good work.

  • Avatar
    Jack Modesett
    Reply

    Dissolving into the body also works for board members and Sunday school teachers, doesn’t it? I have often thought that our main job as teachers is to work ourselves out of a job so that the class members, like the villagers in the story of the woman at the well, have seen Jesus for themselves and don’t need us anymore.
    Bloggers, however, live forever.

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    Drew Anderson
    Reply

    Fred-I full agree that donor intent is central and should be honored by the board. Sometimes a donor wants flexibility and wants to allow future boards to make decisions not restricted by past views. Sometimes it is not specifically expressed and a normal general legal or IRS type wording ( to insure tax exemption qualification) is used in legal documents. I have seen this boilerplate language many times. I know of one foundation who had it’s tax exemption held up over concern that it’s legal purpose and the wording in its basic legal document was too restrictive. Sometimes a strong mission statement or record of grantmaking is not accepted as binding by future boards. But if a donor has clear ideas and purposes, then the donor should state them and show his or her intent by the grants awarded. I believe boards want to do well and can at least in the beginning want to follow what the donor’s guidance is. I can think of two prominent foundations that lacked detailed donor statements-the Ford Foundation and the Buck Trust ( part of the San Francisco Foundation). Both were in the news over their grant making actions and donor intent. The son of the donor to the Buck Trust commented in discussing a lawsuit that his mother was very wealthy did not think about details and trusted advisers who helped her to work out implementation. She wanted to help people in her county and did not think that the recipient she chose to host her gift would try to change the geographic focus . Henry Ford II was very upset at how the Ford Foundation turned out and left the board complaining it was funding programs his grandfather would not have liked and was not supporting projects that strengthen the economic system that made the foundation possible. One large foundation that did have a very detailed donor statement, The J Howard Pew Freedom Trust, is no longer helping the conservative and Christian causes of the donor. Succeeding board members that govern all the related Pew Trusts said that this donor funded other causes and the founding agreement contained a common legal statement allowing grantmaking flexibility. When working for a foundation I asked a prominent Evangelical leader who knew J Howard Pew and used his support to start important Christian institutions what he would recommend to other boards to maintain a consistent donor intent. He told me–“Pick good board members” who were grounded and knew what to do. I do think setting a life span can be beneficial if the donor selects that option. It can provide a focus and bottomline and help a board think about long term grantmaking. We do know that for everything there is a season….Foundations can have a season. You and your fellow board members at the Fourth Partner Foundation seem to have come to this understanding.

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