The "Sunsetting" Foundation: Trend of the Future?

The standard model of nonprofit corporate philanthropy is a nonprofit organization or trust created to last … well … forever.

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.’

The concept of “sunsetting” – that is, planning an end date for the charity –  has been around for decades. The “poster child for the intention to sunset” is the Bill & Melinda Gates Foundation, created in 2000 with the intent to spend down its billions in assets.
Time will tell whether this is a significant trend among philanthropists. We’ll take a look at just two of these sunsetting foundations for some insights. The first is the Fourth Partner Foundation of Tyler, Texas; its founder, Fred Smith, gives some interesting insights. The second is huge, multi-billion-dollar Edna McConnell Clark Foundation which – to the surprise of the charitable world – announced in December 2016 its decision to spend down its assets.

   Fourth Partner Foundation

Fred Smith, the founder of the Fourth Partner Foundation, wrote an article for the Center for Effective Philanthropy, published in June 2016. Its title sums up the thinking behind the decision to wind up: “For Sunsetting Foundations, a Limited Life but a Perpetual Contribution.”
Mr. Smith reports “… talking with families and executives lately about the growing number of private foundations deciding to ‘sunset’ after a predetermined number of years.” There are a number of reasons; primarily a “concern about the mission and values of the foundation shifting away over time from the original intent of the donor.” Other causes are “children not having an interest in the foundation or the assets dwindling away.”
Smith characterizes the process of “sunsetting” as different than merely going “out of business.”

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.

In mid-2015, Smith and Fourth Partner Foundation’s board of directors had a “series of discussions” some twenty years after the formation of the foundation, “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.

The Foundation’s mission had been to overcome “stereotypes and prejudice in the way that the Hispanic community is widely perceived…

[It] 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.

The Board members decided that their “lives and interests had changed,” but they had been successful in their mission, including cultivating “other donors and nonprofits now working in the areas of our interests….We were extremely satisfied with what had been accomplished, [but] we knew our season was at a close and we had made our best contribution.”

   Edna McConnell Clark Foundation

On December 14, 2016, the editor-in-chief of The Nonprofit Quarterly wrote about a surprise announcement: “The Formidable Edna McConnell Clark Foundation Bets the Farm and Opts for Sunsetting.”
At the end of FY2015, this leading organization had assets of almost $1-billion. It now “joins a small but growing number of philanthropic bodies that are pre-electing their own institutional end.” It will spend down that entire amount within the next ten years. “Most of us,” NPQ’s Ruth McCambridge observed, “ thought of EMCF –

as an in-perpetuity endeavor even as its grantmaking became more markedly outside the norm: No meager portions for its most central grantees; instead, they provided and administered mega-grants that included rare nonprofit-directed working capital and money for real outcome evaluations and capacity building. They essentially led if not created data-driven grantmaking. They learned as they went what worked and what did not; they adjusted, and they stayed in for multiple years, they recruited other big investors.

The Clark family, though, when it created the foundation in 1969, “did not envision it as a perpetual foundation. They made clear they wanted the Foundation to make decisions based on what would produce the best result…If we found a good opportunity, we would bet the farm on it.”
The decision of when and how to sunset had been “long under consideration.” Additional details are included in the NPQ article as well as on the website of the Foundation.

  Conclusion

The decision of the Edna McConnell Clark Foundation to sunset in 10 years “makes for a commendable case study of philanthropic humility about to unfold,” according to NPQ’s Ruth McCambridge.
From time to time, we will highlight other foundations’ decisions to take this creative but still unusual step in fashioning a way forward into the future.

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