Foundations Find Different Paths to Closing Their Operations

Foundations that decide to spend all of their assets and close shop don’t follow uniform or precise formulas for how to tie up loose ends, according to a new report.

Published by the Center for Effective Philanthropy, the study is based on conversations with 11 foundation leaders. It looked at various aspects of those organizations, including investment decisions, grantee relationships, performance evaluations, and staffing.

“We learned that there is no one way to spend down,” said Ellie Buteau, vice president at the Center for Effective Philanthropy and co-author of the report. “Our hope is that this research will help foundations that are spending down — or those considering spending down — explore a range of approaches.”

By law, foundations must distribute at least 5 percent of their assets each year. Many foundations have decided to spend much more quickly. For instance, Atlantic Philanthropies announced its last grants in December, around the same time the Edna McConnell Clark Foundation decided to accelerate its giving and go out of business in a decade.

Despite those prominent examples, most philanthropists aren’t considering winding down their operations. In a recent study, also conducted by the Center for Effective Philanthropy, only one in six foundation leaders said that doing so would likely increase a grant maker’s social impact.

Ms. Buteau said the current study was conducted so foundation leaders who might be considering such an action would know what challenges time-limited foundation leaders experience.

Different Ways to Invest

In nearly every category the report covered, the feedback was mixed. For instance, foundations took several approaches to investing.

The Whitman Institute moved 40 percent of its assets into investments it saw as contributing to its social mission. The foundation’s co-executive director, John Esterle, told the center that Whitman will progressively add to that before it closes its doors in 2022.

The John Merck Fund allocated even more of its endowment in mission-related investments. But as its planned 2021 closing date drew nearer, the fund reassessed its risk tolerance. Ruth Hennig, the fund’s executive director, told the center that Merck’s willingness to take riskier investment bets “is constrained because we will need to be going steadily into greater liquidity and ultimately just into cash.”

The Fund for Democratic Communities took another approach. As it drew up a strategy for spending before its 2020 closing, the fund’s leaders considered moving all of its investments out of fossil fuels but found that focusing on socially responsible investing took time away from its efforts to get money out the door fast.

“We like to think we are investing in morally good stuff,” said Ed Whitfield, one of the fund’s managing directors, “but we are not spending a lot of time worrying about it because we’re busy moving that money into the community.”

However, Mr. Whitfield and the group’s other managing director, Marnie Thompson, shared an outlook that was common among each of the foundation leaders interviewed: Their decision was guided by a desire to have a greater impact.

At seven of the 11 foundations interviewed, the original donor made the decision to limit the life of the organization. In other cases, the donor’s intentions were not clear-cut, so the board sorted through the donor’s writings, then made the decision to pull the plug.

For instance, at the S.D. Bechtel Jr. Foundation, which provided a grant for the study, Lauren Dachs, the fund’s president and daughter of Stephen Bechtel Jr., determined her father’s wishes after reading a letter he had written to the board. In it, he said, “It is more important for the foundation to focus on the contributions that we see as the highest priority near-term charitable needs, and let future generations of charitable contributors determine, in the future, the greatest needs of their time.”