Learning from the Sunset

Five lessons for lasting impact from foundations that spend down

After more than three decades as a philanthropist, in 2012 Swanee Hunt decided to give out the remainder of her foundation’s assets throughout the next ten years. As founder and chairwoman of the Hunt Alternatives Fund, the politically progressive daughter of oilman H. L. Hunt has committed more than $120 million to social change initiatives since 1981. Much of that support has gone to stopping global sex trafficking and inspiring women to achieve political leadership positions. Now 63, Hunt wants to enact a “big, big push” on behalf of the women’s issues she has long championed.

“The reason I chose to spend down was because a lot of my contacts are retiring or dying,” she explains. “Working on a project with someone you’ve known for 25 years is very different from working with her replacement, whom you’ve known for six months.” A former U.S. ambassador to Austria and founder of the Women and Public Policy Program at Harvard’s Kennedy School, Hunt has a personal network of potential collaborators spanning the globe that creates powerful opportunities for her foundation—opportunities that are greater now than they will ever be again.

Hunt’s decision to spend down puts her in good company. As advisers to many of today’s most active philanthropists, we at the Bridgespan Group see a growing number of donors resolving to give away most or all of their resources within a defined time frame.

“The trends are unmistakable. Not only are today’s newly established foundations announcing the intention to spend down at an increased pace, but they are also dwarfing their mid-20th century counterparts with respect to the assets they intend to disburse,” says Joel Fleishman, faculty chairman of the Duke University Center for Strategic Philanthropy and Civil Society, who has spearheaded pioneering research in this field. “These newer philanthropists (like Omidyar, Gates, Marcus, Blank, and Feeney) have assets at the billion-dollar or higher levels.”

Fifty years ago, only 5 percent of the total assets of America’s largest 50 foundations were held by spend-downs, compared to 24 percent in 2010. Spend-downs are even more influential when measured as a percent of giving, since they disburse money at a higher annual rate than foundations that aim to last forever. In 2010, 31 percent of giving from the largest foundations came from spend-downs.

And these foundation statistics do not begin to encompass the total appetite for giving while living, since many philanthropists donate directly rather than through foundations. For instance, David Rubenstein, co-founder of the Carlyle private equity group, has pledged to give away the majority of his $2.5 billion personal wealth without a foundation. Bridgespan recently interviewed more than 50 major philanthropists and found that four in ten have decided to spend down much or all of their resources. (Videos from these interviews are available at GiveSmart.org.) Why are so many donors now electing to give away their money over a defined interval rather than in perpetuity?

Discipline, creativity, and focus

The decision to spend down appeals to donors for many reasons, but one stands out: results. Many philanthropists believe that going big during a short period of time, particularly while they are living, will afford them greater influence. They can spend more each year than a perpetual foundation with similar resources, and the declared deadline provides discipline in achieving results.

In addition, many active philanthropists relish the chance to use their skills, networks, and reputation to multiply the impact of their funds. “The wonderful feeling of helping somebody—how am I going to get that from the coffin? Why wouldn’t I want to do it while I’m alive?” asks Bernie Marcus, co-founder of Home Depot. “I consider myself to be a pretty good businessman, so when I give money now, I try to make something better.”

Other donors disburse their money during their lifetimes to avoid the possibility that a perpetually endowed foundation might drift away from their intent, shun risk-taking, or lapse into mediocrity without the donor’s active oversight. When you’ve fixed a date to turn out the lights, every grant is an attempt to make a lasting difference now—before the money runs out. “I tell foundation trustees to act as if they were sunsetting starting day one, because of the focus and hyper-vigilance and due diligence about every dollar spent,” said Lauren Merkin, a board member of the AVI CHAI Foundation, which will close in 2020.

As the number of sunsetting foundations grows, so too do the lessons on how to do it well. Those lessons have value for all philanthropists, because even if a foundation plans to continue in perpetuity, no grant, strategy, or program lasts forever. Nearly every philanthropist regularly decides to exit certain strategies or causes, and thus has the opportunity and responsibility to think with the self-imposed discipline and acute focus of a spend-down.

From our decade-plus of experience advising results-oriented philanthropists, we have distilled five pathways that can lead to enduring change: investing in the people who will become the field’s future leaders, building the capacity of powerful institutions and networks to continue making progress, influencing other philanthropists, funding proven programs that create lasting results, or supporting pioneering research to develop new solutions.

Choosing the best pathway is a complex decision that depends on many factors, and the pathways can be mutually reinforcing. So it can be tempting to pursue all or most of them simultaneously. However, just as no single non-profit or company can execute five lines of business with excellence, no one philanthropist (or foundation) can make outstanding grants across all five pathways. Evaluating a research proposal requires very different skills than partnering with other philanthropists, for example. Since each pathway requires distinct expertise, the key is to avoid spreading resources too thinly. Having a clear, focused approach allows philanthropists to hire appropriate staff, develop deep expertise, and form strong partnerships in the most critical areas. To help clarify the tradeoffs, in the examples that follow we describe a philanthropist who has successfully pursued each of the pathways.

Path One: People

Invest in people who will carry your values and priorities into the future.

Zalman Chaim Bernstein, founder of Sanford Bernstein & Co. and the AVI CHAI Foundation, believed strongly that his money should be given away by people he knew and trusted. He meticulously selected trustees who shared his passionate commitment to strengthening Jewish community, literacy, and observance. Bernstein directed the trustees to spend down his foundation’s resources within a short period after his death so that there would be no need to select replacements who might take it in a different direction.

As AVI CHAI approaches its sunset in 2020, it has followed Bernstein’s principles and invested heavily in developing leaders for Jewish institutions. In particular, it has supported Jewish day schools and camps, which research shows play a crucial role in engaging the next generation. To this end, AVI CHAI helped create the Day School Leadership Training Institute. This 15-month program of summer sessions, retreats, individual mentoring, and peer support deepens participants’ knowledge of Judaism, personal commitment to Jewish values, and practical skills for infusing Judaism into schools. Most alumni become principals or division heads at day schools. Even after AVI CHAI closes, the foundation expects that the people it has trained will continue to shape the next generation.

Investing in people is most effective in fields that rely primarily on a flow of talented individuals. It’s also useful if the chosen issue is evolving over time, and will thus need leaders who can react to changing circumstances.

Path Two: Institutions

Invest in a powerful institution or network so it can continue to meet evolving challenges.

John Olin believed passionately in the American free-enterprise system, and decided to use his family fortune “to help to preserve the system which made its accumulation possible in only two lifetimes, my father’s and mine.” The John M. Olin Foundation, which spent down between 1953 and 2005, built powerful pro-market institutions that have shifted the national conversation.

In 1982, the foundation gave seed money to a loosely organized collection of law students at Yale, Harvard, Stanford, and the University of Chicago to fund a national symposium on federalism. Out of this conference, keynoted by Robert Bork and attended by rising stars such as Antonin Scalia and Richard Posner, the Federalist Society was born. Soon, chapters at nearly all prominent law schools sought to challenge “the prevailing liberal orthodoxy on campus” and to help connect and support conservative students. The Olin Foundation provided more than half the budget of the Federalist Society in the early years, and granted more than $5.5 million throughout the following two decades.

Today, almost a decade after the foundation closed, the Federalist Society continues to thrive, actively promoting limited government and judicial restraint. It has chapters at more than 200 law schools, and its membership includes four current Supreme Court justices. Conservatives consider it an influential counterweight to the liberal-leaning American Bar Association. The decision to endow law and economics centers bearing Olin’s name at top law schools, including the University of Chicago, Harvard, Stanford, Virginia, and Yale, has also paid off in lasting influence on legal scholarship and analysis.

Supporting an institution, either existing or new, can be an effective way to lastingly influence complex or evolving issues. A strong organization or network can provide a valuable base where like-minded individuals can build on each other’s efforts over time.

Path Three: Philanthropists

Cultivate other philanthropists who will support the field or program in the future.

In 1998, John Hunting decided to give his foundation, the Beldon Fund, his $100 million windfall from taking office-furniture manufacturer Steelcase public. At the same time, he set a goal of spending down the entire endowment over ten years. Hunting decided to focus on environmental problems.

It is “important to promote collaboration among foundations, which makes all of our work more effective,” he argued. He selected Beldon’s board members with an eye toward building donor partnerships. Beldon’s staff worked closely with fellow donors and took leadership roles in two collaborations with other funders, the Health and Environmental Funders Network and the Environmental Grant Makers Association. To influence peers, Beldon funded projects demonstrating the effectiveness of its grantees’ work. As one measure of success, the foundation tracked how much other donors invested in its grantees and issue areas.

In a survey completed in Beldon’s final year by the Center for Effective Philanthropy, 75 percent of the foundation’s grantees said that they expected to be able to continue the work Beldon had supported, thanks to funding received from parallel sources. 

Cultivating new funders or new approaches by existing funders begins with building relationships that allow you to understand and motivate other donors, who have their own personal values and priorities.

Path Four: Programs

Expand proven programs to increase impact.

Spend-down philanthropist Josh Bekenstein, a managing director at Bain Capital, first encountered Year Up through an intern hired by his firm’s information technology department. Founded by entrepreneur Gerald Chertavian, Year Up provides low-income young adults with six months of intensive classroom training in professional skills, followed by a six-month corporate internship. Its graduates receive roughly 20 college credits and are qualified for entry-level corporate jobs in fields like technology and finance. One rigorous study found that Year Up participants earned 30 percent more than control-group members in the year after the program. Year Up is now tracking how its alumni fare over the longer term, and preliminary results are promising.

“Year Up is an incredible program. If you’re an 18- to 24-year-old not trained for any skilled jobs, what’s your future?” says Bekenstein. “How are you going to build a good life for yourself and your family? After Year Up, many participants get jobs making $30,000 to $40,000 a year. And Year Up graduates are a great example and inspiration for other kids in the community. It’s one of the most effective models I’ve seen.”

Many philanthropists invest in programs with high hopes, but while many interventions have a great idea and a few dramatic success stories, anecdotes aren’t always representative. The key to this pathway is investing in programs that actually change the long-term trajectory of beneficiaries as evidenced by rigorous data.

Path Five: Research

Support pioneering research that can accelerate the field.

In the mid-1980s, philanthropist Irene Diamond was alarmed by the AIDS epidemic beginning to ravage her hometown of New York City. Fear, prejudice, and confusion were hindering government and institutional investments in AIDS research, she learned. A few years earlier, Irene and her husband Aaron, a real estate developer, had decided to give most of their assets to their foundation and committed to spending down. After his death, she founded the Aaron Diamond AIDS Research Center, or ADARC, making the Diamond Foundation the largest private funder of AIDS research in the United States.

The new center opened in 1991 and soon began making valuable scientific advancements. ADARC pioneered the use of combination “cocktail” drug therapy to treat AIDS, which has helped reduce the death rate from HIV in America to one fifth of what it was 20 years ago. The center also developed protease inhibitors, clarified the virus’s path in the body, and identified a gene mutation that confers immunity to HIV. In 1996, the year the Diamond Foundation closed, Time magazine selected ADARC’s director Dr. David Ho as Man of the Year for his team’s groundbreaking AIDS research, which saved millions of lives.

Investing in research can be a powerful lever for lasting influence if information gaps or urgent questions are impeding progress.

The urgency of deadlines

In all of these examples, the donors’ knowledge that their giving would soon cease was a compelling motivator to use time and money wisely. Faced with the urgency of a hard sunset deadline, they sought a clear, direct path between their investments and lasting impact.

Determining which pathway to follow is a complex decision in which values and beliefs, data and analysis, and time frame and resources all must be considered. For instance, if the spend-down date is 30 years away, the best path might entail incubating a new institution or evaluating a program’s long-term effects. If the foundation or program is ending in two years, cultivating partnerships may be a better focus. If conditions are likely to evolve after the investment ends, supporting institutions or leaders who can adapt may provide more flexibility than investing heavily in unproven programs.

Carefully thinking through goals and pathways takes time and hard work, but spend-down philanthropists who have done it can testify that the payoff is worth the effort. The result is a clear strategy and better odds of results that will endure long after the last dollar is spent.   

Susan Wolf Ditkoff is a partner and the co-leader of the philanthropy practice in the Bridgespan Group’s Boston office, where Amy Markham is a manager. Special thanks to Bridgespan associate consultant Colin Murphy who assisted with this research.