OCTOBER 03, 2020
The Earhart Foundation is another example of a board of trustees deciding to sunset after the original wealth creator’s death.
Harry Earhart was born in 1870, one of eleven children. The son of a respected local businessman, he was also a cousin of pilot Amelia Earhart. He started several businesses, with his greatest success coming as a manufacturer of lubricating oils. Then he used his fortune to support some of the most influential thinkers of the twentieth century through his foundation.
Moving away from a family foundation
After retiring in the early 1930s and settling in Ann Arbor, Michigan, he focused on various charitable and religious causes, initially through a family foundation. But over time, Earhart became concerned about threats to free enterprise and traditional values, concerns that his children did not share. In the early 1950s, he made the bold decision to remove his children from the foundation’s governance and installed a new board comprised of businessmen who shared his philosophical outlook. It is one of the first known instances of a donor reorganizing his board to ensure future compliance with his intent.
A strong record for donor intent
Earhart passed away in 1954, leaving his foundation in the hands of the board. Although the foundation was established in perpetuity at that point, Earhart gave his trustees broad latitude in the bylaws to make a sunsetting decision at a later date. And although he left no formal guidance on focus areas for the foundation, trustees had a wealth of information from his correspondence. He was keen to:
- create a better understanding of American founding principles;
- develop human talents; and
- strengthen the humanities and disciplines such as history, law, philosophy, and economics.
In its subsequent grantmaking, the Earhart Foundation exhibited a peerless knack for identifying talented, influential scholars. Nine Earhart Fellows went on to win the Nobel Prize in economics later in their careers, among them Friedrich Hayek and Milton Friedman.
A decision to sunset
By the early 2000s, the foundation’s leadership was beginning to weigh the question of sunsetting. David Kennedy—one of Earhart’s grandchildren and the president of the foundation at the time—led the board of trustees to explore where the foundation stood and where it might go in the future. Concerned about the many historical violations of donor intent, the board in 2005 opted for a 10-year sunsetting schedule, closing the foundation’s doors in 2015.
“While there was no particular threat to donor intent at the time, the board thought it prudent—given the age of the foundation and the longevity of its operations—that operating for another 10 years would give maximum guarantee that donor intent would continue to be observed faithfully,” says Ingrid Gregg, who was serving as the Earhart Foundation’s president when it shuttered.
Steps to sunset
To ease the spend-down process, the Earhart board took several steps:
1. They kept a consistent portfolio
Earhart’s grant portfolio remained largely unchanged during its spend-down, with slight increases in spending across the board.
2. They made special grants
Trustees also identified 10 top-performing grantees and targeted them for special closure grants. “The goal was to avoid peaks and troughs of spending, but have a gradual increase in targeted areas,” Gregg says.
3. They retained existing staff
To ensure program consistency, the board was also careful to maintain existing staff throughout the closure process by instituting incentives (including financial ones) to maintain the core staff.
4. They kept communication channels with recipients open
Communication with grantees was also paramount. “We really wanted to be as transparent as was appropriate with our grantees because we were mindful of what it would mean for them to not have Earhart’s resources available to them anymore,” Gregg says.
The end result
In 2015, after more than seven decades in existence, the Earhart Foundation officially went out of business. “Sunsetting can be an incredibly nimble and flexible process,” concludes Gregg. “It can be tailored specifically to small family foundations or much larger foundations. While some donors might find the process a little intimidating, they can be persuaded to realize that they don’t have to be boxed into strategies or limited in their effectiveness.”