What I Learned From Foundation Leaders Overseeing Spend-Downs

Soundeath/shutterstock

Last year, I spoke with Priscilla Enriquez, the CEO of the James B. McClatchy Foundation, about the Sacramento-based funder’s plan to sunset by 2030. 

The board announced their intentions in 2016, and during our call, Enriquez said that as the co-chair of the National Center for Family Philanthropy’s Strategic Lifespan Peer Network, she had received valuable guidance from peers who were spending down or considering doing so.

Our conversation hit on issues like preparing grantees and staff for a McClatchy-less future as well as the ethical, and dare I say, moral case for foundations to ramp up funding beyond the mandated 5% payout. “Imagine if a foundation increased their giving by 1%, or even half a percent?” Enriquez asked. “Would that really damage the corpus? I mean, come on.” 

I found myself agreeing with Enriquez and realized that it would be useful to speak with other leaders who’ve embarked on a similar journey. The National Center for Family Philanthropy’s (NCFP) Director of Programs Daria Teutonico put me in touch with other network members, and I quickly discovered that while each foundation’s backstory was different, leaders across the board grappled with the same challenges that Enriquez faced.

Even more strikingly, each interviewee pushed back against the idea that grantee organizations will wither away if their foundation closes its doors. These leaders signed off on large and unrestricted sunsetting grants and argued that this approach does more to strengthen an organization for the long haul than slow-dripping small, project-based grants until the end of time. If there’s truth to this assertion — and I believe that there is — it's incumbent on trustees to revisit the strategic utility of perpetuity.

Here are a few takeaways from my discussions with leaders at sunsetting foundations.

Leaders take different journeys to the same destination

In 2019, the NCFP published “Trends 2020,” its second national benchmark survey of family foundations, which revealed that only 9% of surveyed foundations were time-limited.

The NCFP will publish a follow-up report, titled “Trends 2025,” in the fall, so while it’s too soon to tell if that figure has gone up, NCFP President and CEO Nick Tedesco told me more family foundation leaders are reappraising the “default position” of perpetuity. If NCFP’s forthcoming report shows that the 9% figure went up, that means foundation stakeholders concluded that moving large sums of money out the door now trumped the foundation existing forever (although the family could always reverse the sunset by making new contributions).

Some individuals who established private foundations agree with this thinking — like Gary Rogers, who made his fortune as the chair and CEO of Dreyer’s Ice Cream, and his wife Kathleen. The pair established the Oakland-based Rogers Family Foundation in 2003 with the intention that it would only operate through their children’s generation.

For other foundation leaders, sunsetting fell into place over time. The Santa Barbara-based Swift Foundation was established by conservationist John Swift, and within a decade, it was disbursing 10% of its assets, which meant that without an infusion of new contributions, it would automatically spend down. So when executive director Suzanne Benally approached the board about formally sunsetting in 2022, members signed on with minimal fuss. “With the payout and the kinds of investments we were making, the foundation was in a natural spend-down already,” Benally said.

Other decisions evolve over a prolonged timeframe. Alfred James and Alice Clark started their family foundation in 1987, but it wasn’t until 2010 that James decided it should close its doors. In 1994, journalist and publisher James B. McClatchy and his wife Susan established what would later be renamed the James B. McClatchy Foundation. “I don’t think they knew whether the foundation would be around forever,” said Enriquez, and in 2016 — a decade after James passed away — Susan and the board decided to sunset by 2030. 

I suspect family foundation leaders participating in the NCFP’s “Trends 2025” survey are engaged in similar deliberations. Many founders established their foundations with the expectation they would be awarding grants 50 years from now, but as time elapses, endowments swell and needs become more acute, those individuals and their heirs may be gravitating toward a more aggressive payout amount or a full-blown spend-down.

Sunsetting requires leaders to work “in multiple timelines”

In some ways, deciding to sunset is the easy part. The real challenge comes when stakeholders have to iron out the complex financial and operational details, starting with when the foundation will turn off the lights.

This decision dictates how much money the foundation moves out the door each year, the extent to which trustees move its endowment to more predictable low-risk investments and whether to provide grants to existing organizations or add new ones to the portfolio. 

As a result, leaders overseeing a sunsetting foundation are working on what Rogers Family Foundation Executive Director and CEO Rhonnel Sotelo called “multiple timelines.” 

Consider how leaders decide to support grantee organizations. Sotelo and his team funded existing grantees on a staggered timeline across the Rogers Family Foundation’s five-year sunsetting process. Similarly, the Swift Foundation, which centered its efforts on building current organizations’ long-term sustainability, did not solicit new applications. In each case, leaders’ multiple timelines did not include one devoted to engaging new organizations.

In contrast, the James B. McClatchy Foundation’s leaders introduced the foundation to nonprofits throughout California’s vast Central Valley in a series of listening sessions, creating a distinct and resource-intensive timeline. Leaders also periodically solicit feedback from grantee organizations and modify their spend-down plan as needed. 

If this all sounds like a complex undertaking, it is. Leaders saw their workloads dramatically increase and some hired new staff to move abnormally large amounts of money out the door. 

With so many moving parts, there will be some disruption and pitfalls along the way. But leaders underscored how thoughtful and transparent planning can circumvent a substantial amount of downstream drama. “The most important element for everyone in this process,” said the Rogers Family Foundation’s Sotelo, “is predictability.”

Sunsetting necessitates a different kind of grantee engagement

Once plans were in place, leaders had to prepare constituencies for the sunset. The Rogers Foundation’s Sotelo said the most “unforeseen” aspect of the process has been fielding questions from staff about issues like career development and coaching, confidentiality and legal considerations, and health and 401(k) retirement benefits. 

Other leaders grappled with the same challenges, and those conversations were particularly acute in cases where employees didn’t expect the foundation to sunset. But again, transparency and communication are key. Staff who received consistent guidance and assistance in landing their next jobs had no major qualms working for a foundation flooding undercapitalized grantees with large amounts of funding.  

The same lesson applied to how foundation leaders interacted with the individuals on the receiving end of those sunsetting grants. People I spoke with said nonprofit leaders were understandably concerned upon learning a sustaining foundation was spending down. But as time went on, that concern turned into appreciation as foundation stakeholders redefined the traditional grantmaker-grantee relationship. 

Trustees at perpetual foundations who are reluctant to imperil their forever status often give nonprofits just enough money to make it through the next 12 months. They also ask organizational leaders to measure their performance across a comparatively brief timeframe, like tracking the number of people the nonprofit serves.

Stakeholders presiding over sunsetting foundations throw that playbook out the window. Rather than getting organizations through the next calendar year, they took a more long-term view, determining whether partners could handle large gifts and development teams had capacity to raise money from other sources. Some foundation leaders wanted to be sure organizations had viable leadership succession plans in place; others matched nonprofits with strategic planning consultants. 

Leaders then provided vetted organizations with abnormally large, unrestricted sunsetting grants to strengthen or expand service delivery and build long-term financial sustainability. Even if the foundation isn’t around in 100 years, its grant recipients may very well be, and if the past 100 years are any indication, they should be able to tap a vast ecosystem of deep-pocketed funders. As one Strategic Lifespan Peer Network noted in a member survey, “Tomorrow’s rich people can solve tomorrow’s problems.”

It’s no coincidence that the James B. McClatchy Foundation uses the term “Sunrise” plan to convey optimism and rebirth, and every leader I spoke with said that grantee partners were grateful that large, sunsetting grants allowed them to fund programs, give staff raises and plan for the future without constantly having to scrounge for change in the sofa cushions.

I’m going to go out on a limb and guess that I’m not the only individual leaders have talked to about their sunsetting journeys. They frequently share their experiences with peers at other foundations, so we shouldn’t be surprised that the donors whom the NCFP’s Nick Tedesco has spoken with are increasingly wondering if they’d be more impactful by moving larger amounts of money out the door — even if it threatens their foundation’s perpetuity. 

For sunsetting proponents like the Rogers Family Foundation's Sotelo, this kind of soul-searching is a good thing. “Every foundation,” he says, “needs to think about if they’re in the business of hoarding wealth rather than redistributing it to those they’re partnering with.”