Report #155: November 2009

1. Recent Economy Reinforces Need to Think Critically About Impact of Time, Money in Fulfilling Foundation Goals; Lessons from ‘Spend-Down’ Case Studies
Spend down, or the policy of dissolving a foundation’s assets over a pre-determined period, is a long-established practice in philanthropy although many donors and trustees prefer to maintain what they see as the sanctity of perpetual endowments. And according to a new research report, adopting spend-down policies increases the prospect that a foundation or trust will be in accord with the wishes of a donor. As such, limiting a foundation’s life should be one of the options a donor considers in drafting a foundation’s charter and by-laws, according to this study funded by the Aspen Institute Program on Philanthropy and Social Innovation (PSI). But a spend-down policy will only succeed if foundation leaders carefully harmonize the foundation goals with available resources, a realistic assessment of the problems it sets out to solve and a clear understanding of the organizations it identifies to fund. Written by John R. Thelin of the University of Kentucky and Richard W. Trollinger of Kentucky’s Centre College,
Time Is of the Essence: Foundations and the Policies of Limited Life and Endowment Spend-Down notes that the vacillations in foundation fortunes over the past two years reinforces the need for foundations and their donors to think strategically about the trajectories of time and money in fulfilling their objectives. Thelin and Trollinger write that limited-life foundations are disciplined, clear about their goals and are likely to have realistic start and end points for major projects.

The report offers detailed case studies of five carefully chosen spend-down foundations that offer insights for other foundations contemplating this course: the Julius Rosenwald Fund, the General Education Board, the Lucille P. Markey Charitable Trust, the Mary Flagler Cary Charitable Trust and the Corella and Bertram F. Bonner Foundation. The authors deem these to be spend-down success stories, although there are elements to the stories that provide caution. The authors’ most basic recommendation is that a decision about foundation lifespan should be made at the outset and stated explicitly in the foundation’s organizing documents. This runs counter to common practice, as reported in a recent Foundation Center study, discussed below. A majority of family foundations do not incorporate a decision about intended lifespan into their founding documents. In fact, the Foundation Center study notes that just over half of those foundations planning to exist in perpetuity have made the decision formally.

Specific lessons for donors include:

*Donors should invest time and effort at the outset in defining “donor intent” as they see it.

*Donors should identify their desired outcomes, which will suggest strategies for achieving them, including whether to exist in perpetuity or for a limited time.

If the foundation is to be time-limited, determining how limited is a difficult but important decision i.e., making sure the foundation doesn’t dissolve too soon, or stay on too long. Furthermore, evaluation of foundation programs is critical to keeping a focus on the outcomes.
 
In its case studies, the authors describe Rockefeller’s General Education Board as an excellent example of private philanthropy stimulating work for the public good that most likely would not have taken place otherwise. In its day, when the federal government had a limited presence in educational policies and programs, the GEB was regarded by some as the United States’ equivalent of a Ministry of Education. GEB was prominent in good measure because it deliberately and voluntarily phased itself out of existence, with specific, detailed plans for winding down. Similarly, the Lucille P. Markey Charitable Trust limited its existence to just 15 years, during which more money was directed to its mission, and more funds and larger grants distributed, allowing the trust to produce a greater impact on its grantees’ behavior and actions than otherwise would have been the case. On the other hand, both the Julius Rosenwald Fund and the Mary Flagler Cary Charitable Trust achieved their goals early but arguably continued to operate longer than necessary. In the case of the Rosenwald Fund, its leaders undertook few studies on the consequences of its work and did not rely on systematic program evaluation to help strengthen both the connection between mission and broad goals and the performance measures of specific projects.

*Donors should engage people with expertise, shared passion and shared values to lead their foundation, rather than relying on friends or business associates.

2. Perpetuity Is the Norm, although More Foundations Are Considering Spend Down; Study Says Few Limited-Life Foundations Have Publicly Announced Their Plans
Just how many active foundations are planning to spend down their endowments? And what motivates them to make such a decision? Those were among the basic questions the Foundation Center sought to answer in a recent study with funding from the Aspen Institute’s Program on Philanthropy and Social Innovation (PSI). The most basic research finding, as reported in Perpetuity or Limited Lifespan: How Do Family Foundations Decide?: Perpetuity is the norm for most existing family foundations, and a large majority of foundations planning to exist forever have never considered an alternative and are unlikely to do so in the future. Nonetheless, a substantial minority of respondents agreed that attitudes toward limiting lifespan are changing in the foundation community. As one grantmaker put it, quoted anonymously: “More foundations are considering [limited lifespan] but there are not more foundations actually implementing it.” Indeed, most foundations planning to spend down have not yet started the process and have thus made only limited changes in operations and grantmaking, according to the report.
Furthermore, only 11 percent of limited-life foundations have publicly announced their plans. And even among those that have actually set a timeframe for spending down, only 16 percent have announced such plans. “We will not announce sunsetting prior to termination and open the floodgates,” the report quotes one foundation leader, who chose to remain anonymous, but who reflected the concerns of many.

In general, based on the study, perpetual foundations are older and larger than limited-life foundations, are more likely to be endowed and less likely to have living donors.

But what will be the impact of the economic recession on foundation lifespan planning? Advisors consulted by the study’s authors were in general consensus that a good number of family foundations that had expected to exist in perpetuity may now consider spending down or folding assets into donor-advised funds. Smaller and newer foundations that have not had much time to grow are considered most likely to consider limiting lifespans. But the report notes that the proportion of family foundations making the decision to spend down is likely to remain modest.

3. Commentators Call for Greater Nonprofit Advocacy, Particularly on Economic Policy; ‘Beating the Drum’ for Social Equity, ‘Weightiest of Public Concerns’
Philanthropists need to speak out more about impact of the market and regulation on their work, according to two recent commentaries. Tim Delaney, President and CEO of the National Council of Nonprofits, wrote an Aug. 19 online column in the Nonprofit Quarterly chastising the sector for not speaking up about policies and issues that impact it and the communities it serves. Delaney notes that a recent White House report on the economic impacts of health care reform made no mention of the nonprofit sector. The reason is not because policymakers don’t care, he argues, but because the sector tends to be “overly polite,” expecting policymakers to invite them to the policy table, as opposed to “beating the drum” to be better recognized and respected.

4. Strong Leadership, Financial Oversight Key to Coping with Economic Stress, According to Surveys; Call for Grantmakers to Give Greater Warning of Reductions
Even if recovery is slowly underway in the larger American economy, it will likely be 2011 before grantmaking and the nonprofit sector start to recover. According to recent surveys, strong leadership focused on the nonprofit’s mission not merely its survival. Greater financial transparency and frugality are critical in enabling nonprofits to cope in a time of reduced resources and increased demand. In a special report identifying patterns emerging from national and state surveys on nonprofit responses to the economic crisis, the National Council of Nonprofits reports that very few nonprofits have sufficient financial reserves to weather a protracted period of economic stress, forcing them to develop creative new strategies. This report stresses the need for nonprofit leaders to recommit to the nonprofit’s mission and to helping the community and the public. NCNA also notes that savvy nonprofits are “staying close to funders”: They’re asking grantmakers to be transparent about how much funding to expect, and within what timeframe, so they can conduct realistic financial planning. This is true especially if the grant will be smaller, delayed or even discontinued. It’s better to hear bad news earlier rather than later so nonprofits can make immediate adjustments, according to the report.

5. Foundations Are a Key Reason for Nonprofits’ Financial Stress, According to GEO Report; Simply Listening, Engaging Grantees More Could Improve Matters
According to a report from Grantmakers for Effective Organizations, too few grantmakers are actively engaged in ongoing conversations with grantees, leaving many unaware of both the serious fiscal bind in which many nonprofits find themselves and how grantmaking practices contribute to such a bind.  In fact, this report, On The Money: The Key Financial Challenges Facing Nonprofits Today -- and How Grantmakers Can Help, concludes that grantmakers, despite their best intentions, are a key reason for the financial stress that nonprofits face. Too much grantmaking today, according to the report, takes a short-term approach of providing money for services now, rather than investing in nonprofits to improve their operations for a long-term approach of tackling some of society’s biggest problems. The uncertain economy has only made this situation worse, as grantmakers have pulled back from multi-year commitments because of financial uncertainty.  The best way to improve the situation, says GEO, is to listen and engage with grantees: Have an open and honest conversation about the true costs of nonprofit operations, from fundraising and personnel to technology and other infrastructure, and then change grantmaking practices and assumptions regarding nonprofit finance accordingly. Although more grantmakers are increasingly interested and committed to providing general operating support and strategic planning grants, GEO calls that just the first step in improving the situation. Better financial knowledge and management is needed all around.

6. Survey about Philanthropy’s Future: Increase in More Nimble, Business-Minded Nonprofits, Less Attachment to Tradition
How are today’s high-net worth individuals different from yesterday’s when it comes to giving? A year ago, the University of Pennsylvania’s Center for High Impact Philanthropy issued a survey finding that, in addition to a reliance on peers for information and little use for or even awareness of academic research about the sector, many of them are even uncomfortable being called “philanthropists.” A more recent survey echoes this, finding that today’s donors prefer less structure and bureaucracy to their giving. They like to go against the grain. And it’s not just the word “philanthropist” they have trouble with: The traditional foundation may increasingly become “a dinosaur model,” argued one nonprofit expert quoted in Tomorrow’s Philanthropist from the British firm Barclays Wealth, in cooperation with Ledbury Research. Along with analysis from experts, this survey of 500 donors under the age of 45 in the United Kingdom and the United States finds that instead of perpetual foundations, they prefer giving through smaller, more nimble vehicles that won’t outlast them.

7. Foundations Stepping up Role as Content Providers to News Organizations, a Response to Changing Practices, Times, According to Harvard Paper
As more news organizations struggle to stay afloat during the recession, foundations and other nonprofits are stepping up to help provide serious coverage of specific topics these organizations can no longer afford on their own, according to a discussion paper from Harvard University’s Joan Shorenstein Center on the Press, Politics and Public Policy. This new practice, not without some concern about journalistic objectivity, is a response to news organizations cutting back, in some cases drastically, on staff and in-depth coverage of complicated issues such as health care. The Kaiser Family Foundation is leading the trend by offering free, well-reported stories to media outlets nationwide through its new Kaiser Health Service. Other foundations in states across the country are following suit, according to Getting It for Free: When Foundations Provide the News on Health, written by freelance journalist and Shorenstein fellow Maralee Schwartz. By picking up the tab and providing these services, such efforts free up editors and reporters to spend money on other kinds of stories and balance their coverage. The paper says this new news model is imperfect, but calls it a start toward addressing a serious collapse in the traditional approach. It suggests that concerns about journalistic standards can be addressed through the establishment of codes of conduct for the work and for these relationships, as well as with full transparency to readers about the arrangement.

8. Participants at Clinton Global Initiative Call for Campaign to End Human Trafficking; Focus on Efforts to Advance Girls, Women in Developing World
Foundations could help launch an international campaign to end human trafficking and forced labor – or as one panelist at September’s Clinton Global Initiative put it, “We have to call it what it is: slavery.” Such an anti-“slavery” campaign, according to participants at a session on the topic, would be akin to campaigns to ban landmines, curb drunk driving and ban smoking, in which greater public awareness as well as public shaming and penalties are established. Human trafficking was discussed at a couple sessions at this year’s CGI, which more broadly focused on supporting the developing world’s women and girls, helping ensure that they prosper. U.S. Ambassador-at-Large for Global Women’s Issues Melanne Verveer suggests global society may be at a tipping point in recognizing the importance of this issue, with major players from every sector engaged. At a plenary on the topic, corporate leaders stressed the value of educating adult women. Whether or not they become future employees themselves, adult women will influence and impact their daughters, other children and other women in their communities, encouraging them to pursue education that equips them for employment.

9. Foundations Are An Element of American ‘Soft Power’ Operating Overseas, According to Provocative Academic Book; Remaking the World in America’s Image
American foundations funding overseas are an element of American “soft power,” an extension, however indirect or unintentional, of the government’s interests, remaking the world in America’s image. That’s at least the view of an increasing number of scholars and observers according to a recent provocative book from the Indiana University Press. Globalization, Philanthropy and Civil Society: Projecting Institutional Logics Abroad reports on philanthropic projection, or the practice of foundations working in countries where civil society is weak and a network of nonprofits is just beginning to emerge. These foundations then project their ideas and operating practices, exporting who and what they are, in ways that can cause local consternation. The book’s editors, David C. Hammack of Case Western Reserve University and Steven Heydemann of the United States Institute for Peace and formerly of Georgetown University, write in an introductory chapter that this practice creates a “Western grant economy”: Access to material, professional and “reputational” resources are contingent on the extent to which local nonprofits take on the norms, practices and procedures of Western counterparts. This economy creates nonprofit sectors tightly linked to foreign donors, with what Hammack and Heydemann say are only tenuous connections to their own societies.

10. Partnering with Private Philanthropy Should Be Model for Official U.S. Foreign Aid Going Forward, Scholars Argue; Ideas Build on Hudson Institute Report
The U.S. government needs to leverage its foreign assistance by partnering with foundations and nonprofits working overseas, according to Carol Adelman of the Hudson Institute and Nicholas Eberstadt of the American Enterprise Institute. They wrote a lengthy Aug. 31 article in the conservative Weekly Standard identifying nine principles of successful foreign aid projects, developed through analysis of projects from foundations and others which they deemed to have had a measurable impact. The article follows the recent publication of the fourth Index of Global Philanthropy and Remittances from Adelman’s Center for Global Prosperity, which called for a new business model for official U.S. foreign aid that reflects the role of private giving.

11. Foundations Should Help Increase Networking Opportunities for Rural Nonprofits, Philanthropy, According to Two Recent Reports
The gap between funding for rural and urban nonprofits was stark before the economic crisis, and a recent report from the consulting firm Bridgespan notes that the situation has certainly not improved since. So what can foundations, also hurting from the recession, do with little or no added expense to help level this playing field? In a word: network. Foundations can help increase rural nonprofits’ visibility and networking opportunities, according to Nonprofits in Rural America: Overcoming the Resource Gap. Although it’s not a panacea, affiliating with a national network seems to help rural nonprofits. The network’s brand and reputation help legitimize the organization with funders outside its region. In addition, the report suggests that foundations should simplify initial application requirements to ease grant-writing burdens; partner with community foundations or regional collaboratives, not just go it alone; and help grantees’ parlay support to gain access to a wider pool of funders. Networking was also a topic of discussion at the Council on Foundations’ conference on rural philanthropy held in July. A brief report summarizing the priorities and recommendations from the conference stresses the value of networking to help rural nonprofits. According to 2009 Philanthropy and Rural America Conference: Outcomes and Recommendations, foundations should support efforts that enable rural philanthropists and foundations to network and collaborate to address rural challenges and opportunities.

12. Post-Katrina New Orleans Is Now A Model for Philanthropy, According to Longtime Observer; But There’s Still Plenty Left to Do and Learn
Four years after Hurricane Katrina provoked one of the United States’ greatest disasters, Tony Pipa, a founder of the Louisiana Disaster Recovery Foundation, sees a lot of good happening in New Orleans. He even calls the region a model for philanthropy. Pipa, who first shared lessons from post-Katrina Louisiana in a 2006 paper for the Aspen Institute, wrote in an Aug. 27 post to the Foundation Center’s PhilanTopic blog that social innovation is in full flower along the Gulf Coast. In particular, the Crescent City now has what he believes is the highest level of civic engagement in the United States – and foundations can take a lot of credit for this. He notes that philanthropy has taken risks, including establishing charter schools to turn around and redefine what he says used to be the nation’s worst public school system. Foundations have also strengthened the local nonprofit sector, including giving it a real advocacy voice at all levels of government.

Still, Pipa says there’s plenty left to do and learn in rebuilding the region – and he expresses concern that many foundations are wrapping up their efforts, thinking they’ve “done their part.” In fact, most residents consider recovery to be a ten-year process, meaning it’s not even at the halfway point yet. Foundations should continue investing in the many creative community-problem solving efforts going on, he writes in a comment to his post, since they’re sure to learn lessons that could be applied elsewhere.

Meanwhile, at a discussion at the Clinton Global Initiative focused on one organization’s work in building affordable, environmentally friendly “green housing” in New Orleans, former President Bill Clinton said that New Orleans will be a disaster all over again if foundations and others don’t work harder to mitigate global warming.