Why on Earth Would a Foundation Try to Get Rid of All of Its Money?

The reasons behind The Atlantic Philanthropies’ decision to spend all of its endowment are outlined in this 2009 speech by Gara LaMarche, Atlantic’s President and CEO, at the Annual Meeting of Delaware Valley Grantmakers in Philadelphia.

My talk this afternoon poses the question, which I will spend the next fifteen minutes or so attempting to answer, “why on earth would a foundation try to get rid of all of its money?” It is the aspect of The Atlantic Philanthropies, I find, that most people are intensely interested in. Not the fact that we are one of the largest foundations in the world – in fact the largest private funder in every one of the seven countries in which we operate, outside the United States. Not that we have a legal status that permits us to be extensive and vigorous funders of advocacy. Not our comprehensive approach to evaluation and learning and somewhat rare, for our field, in-house unit for carrying it out.

No, what is most fascinating to observers of The Atlantic Philanthropies is that our board, following the wishes of our donor, Chuck Feeney, is committed to spending our endowment and ending the foundation as we know it in the next eight years. By the time we are done, we will be the largest spend-down foundation in history. What, people want to know, is it like to give away money at that pace? How does it make your strategies and practices different from foundations trying to manage their assets to exist in perpetuity? And how, they always ask with a laugh, can they help us spend it faster?

Well, in the last few months the market has been doing a fine job of helping us get closer to zero, thank you very much. It is suddenly a different and stranger climate in which to be talking about spending down, when several of our colleague foundations have in recent weeks literally gone out of business, involuntarily and with terrible impact on grantees left struggling to deal with the effects of cancelled payments. But Atlantic still has over three billion dollars left, and yes, it is a weighty responsibility. Why did we take this less-traveled route?

It started with our donor, Chuck Feeney, who believes strongly in a philosophy he calls “giving while living.” By the 1980s, Feeney had already transferred virtually all of his vast wealth to the foundation, and has lived since quite modestly, owning no home or car. He remained on the Atlantic board, and a few years ago, when the foundation’s future was being discussed, Feeney, who was heavily influenced by Andrew Carnegie’s “Gospel of Wealth,” and Carnegie’s belief that a man who dies wealthy dies disgraced, sent a rare note to the Atlantic Trustees, saying: “I believe that people of substantial wealth potentially create problems for future generations unless they themselves accept responsibility to use their wealth during their lifetime to help worthwhile causes.”

The idea is that the world has many pressing problems, and if we can focus resources on them today, through an investment approach, we will minimize the need for dealing with them more urgently and less thoughtfully as crises later on. That lens guides in the first place the selection of issues that the Atlantic board identified – the challenges of aging societies, the needs of disadvantaged children and youth, systemic abuses of human rights, the delivery of health care to underserved regions and populations – but it could be applied as well to other issues, like climate change.

Spending down your assets is not for everyone, and recognising the pluralism of philanthropy, we understand that most foundations will probably not choose to follow us. We have no desire to preach or scold others for choosing to remain perpetual institutions. There are many positive reasons for assuring strength and continuity over generations.

Yet we hope to provide advice and examples to those who are considering the path we have taken. And there will be more. Despite the current economic distress, it is safe to predict that in the next twenty years, as in the last twenty, significant new sources of philanthropic wealth will come into the picture. While Ford, Carnegie, Rockefeller and a few other 75-and 100-year-old perpetual foundations continue to play extremely significant roles on the philanthropic scene, a number of today’s largest and most talked-about foundations – Gates, now buttressed with the Buffett contribution; George Soros’s Open Society Institute, for which I used to work; the Google and Omidyar Foundations; and Atlantic itself – did not exist a few decades ago. Some, like Atlantic, will disappear, but others not yet born will emerge and become leaders and innovators.

The spend-down approach to philanthropy is just beginning to receive scholarly attention, and Atlantic has itself supported two research initiatives, one by the Urban Institute and the other by the Aspen Institute. We also participate in a few oral history and documentation projects focusing on our choices and process. The leading historical model for spending down is the Julius Rosenwald Foundation, established in 1917, not long after Carnegie and Rockefeller, by the founder and President of Sears Roebuck. According to the recent biography of Rosenwald by his grandson, Peter Ascoli, he came to feel that endowments were often created by well-meaning donors for purposes whose significance waned over time, such as orphan asylums, which even by Rosenwald’s day had come to be seen as outmoded institutions.

Julius Rosenwald also had an activist bent, and an aversion to bureaucracy characteristic of visionary living donors – take it from me, I have worked for two of the four biggest, George Soros and Chuck Feeney — Rosenwald wrote to his board that:

“I am not in sympathy with … perpetuating endowment and believe that more good can be accomplished by expending funds as trustees find opportunities for constructive work than by storing a large sum or money for long periods of time. By adopting the policy of using the fund within this generation, we may avoid these tendencies toward bureaucracy and a formal or perfunctory attitude toward the work which almost invariably develops in organisations which prolong their existences indefinitely. Coming generations can be relied upon to provide for their own needs as they arise.”

Or, as Waldemar Nielsen put it in his book Inside American Philanthropy, “time is not the friend of foundation vigor and effectiveness. In fact, with the passing of years, decay and stagnation are quite common, if not endemic.”

So Julius Rosenwald played a large role in the University of Chicago and a variety of Jewish organisations, but perhaps his biggest legacy was the construction of schools serving rural African-Americans in 15 southern states, cooperatively built with local communities, and the strengthening of key black institutions of higher education, among them Tuskegee and Howard universities. He also created 1,000 scholarships and fellowships for African-American students. The human capital energised by this generosity is incalculable. But because Julius Rosenwald cared little about the credit, and did not leave behind a perpetual foundation bearing his name, his impact is much less well known than that of the Carnegies, Rockefellers and Fords. That may be one reason, perhaps, why the spend-down course is not often followed, since in my experience ego is not in short supply among the wealthy and successful.

While Rosenwald’s is the largest previous spend down foundation, there are others, and Atlantic is trying to learn from their experiences.Irene Diamond and her husband Aaron created a foundation, named after Aaron, who died before it got off the ground, and over ten years in 1980s and 1990s it spent its assets on a set of focused initiatives, leaving at least two significant legacies, an AIDS research center headed by Dr. David Ho, who was named Time’s Man of the Year in 1996 for his critical role in creating anti-retroviral therapy; and a set of successful small high schools in New York City, which formed the basis for a much broader school reform effort eventually joined in by Gates, Carnegie and OSI and institutionalised in New York and elsewhere. Not a bad monument.

I knew Irene Diamond, who died in 2003 at the age of 92, and like Rosenwald, Feeney and Soros, she was an impatient person. Vincent McGee, who led her foundation, recalls that she didn’t have much tolerance for process or long learning curves. “Look, you have youth and time to talk about process,” she once said to him. “I don’t. I’m the fire engine driving your process down the street.”

Vinny, who is an activist himself, now works for Atlantic and is a tremendous resource for our spend-down process. We also just hired Bill Roberts, the longtime leader of the other most prominent and effective spend down foundation of recent years, The Beldon Fund, which over ten years concluding in 2008 was a major force in creating state organising capacity for environmental protection. Bill’s experience will also be helpful to Atlantic, since he knows first-hand, as he told “Beyond Five Percent,” a recent publication of Northern California Grantmakers and the New York Regional Association of Grantmakers, how difficult it is to implement and complete a spend down plan. “To get a clear, focused, staffed strategy humming in less than two years is optimistic,” Bill said. “Then you’re on the street, looking for grants to make, explaining the strategy, which can take another year or two. All pistons don’t fire until year three or four. Then you make a mid-course correction in year five or six, so now you have maybe three years where you’re at full tilt – the sweet spot.”

One spend down foundation whose departing staff we didn’t hire, since it’s at an opposite ideological pole from Atlantic, is the John M. Olin Foundation, though I admire its discipline and its leadership very much – a story told in John Miller’s “A Gift of Freedom,” a book I assign to my philanthropy and public policy class at New York University’s Wagner School. Olin was influenced by Julius Rosenwald, but his own interests focused on preservation of the free enterprise system that had allowed him to build his fortune, and the conservative law and economics movement, not to mention the Federalist Society, which shaped Reagan and Bush justice policies, including the life-tenured federal judiciary, can be counted among Olin’s legacies.

Of course, there are a number of avenues available to foundations between preserving themselves forever and going out of business. In 1999, the Charles. E. Culpepper Foundation turned over its assets to the Rockefeller Brothers Fund and merged trustees and operations. Raymond C. Smith, a food store heir, merged his foundation into the Community Foundation for Southeastern Michigan when he died at the age of 97. The HKH Foundation has established flexible payout rates to permit it to rise to opportunities that call for stepped-up spending, for instance increasing its giving by a third to promote civic engagement before the 2004 elections, in the same spirit that Atlantic and the Open Society Institute have announced plans to spend tens of millions of dollars together to take advantage of the enormous policy opportunities presented by the new Obama administration.

Now, finally, to the question of how it affects the choices Atlantic makes and the ways in which we carry out our work. There are three principal areas to look at: investments, human resources, and programme.

Atlantic’s investment team has one of the most unusual challenges in its field. We want those managing our funds to maximize the return on our assets while we work steadily to reduce them. In our shorthand description of this, it means getting to zero by the end. Briefly put, our Investment Team and Committee have been charged with managing our money to assure that we can pay our current commitments (currently in the neighborhood of $900 million), commit a further annual amount of approximately $360 million a year, and pay for our operating costs. The grant commitment target has been set so as to be challenging, but achievable, and we hope to be able to increase the commitment rate over time if returns are good, being more conservative – as at the current moment – when conditions are challenging.

These are all policy decisions, of course – we could decide to alter our spending plan, making more grants now and fewer later, or end the foundation earlier than 2017 – but given our current plan of assuring a steady flow across the remaining years, we are on track.

I was pleased upon coming to Atlantic in 2007 to find that we had a good plan in place for encouraging key staff to remain in place carry out the work of the foundation until the end, and dealing with them fairly. In the absence of such a plan, there would be a natural tendency for staff to seize opportunities that arise in order to plan for their careers and their families, and they’d be justified in doing so. I certainly plan – unless my employers decide otherwise – to be the one to turn out the lights at Atlantic. And if we are faced with gaps in staff capacity in the final years, I think we could attract the necessary talent by tapping accomplished people seeking “encore” careers, in the fashion of our chairman Fritz Schwarz, who followed a successful corporate and civic legal career to take a senior role at the Brennan Center for Justice, or young people, who would see spending a few years at Atlantic as a valuable opportunity, and in some cases academics and other professionals, who could come to us on leave or private-sector consultants seconded to us for a time.

I don’t worry too much about the human resources side of spend down, not only because of the tools we have put in place, but also because virtually all staff at Atlantic are mission-driven. When people are principally motivated by advancing their social values, as our staff at all levels are, and when you treat them well and with respect, their loyalty to the enterprise is strong.

On the most important programme side, we are just concluding a months-long process of what Bill Roberts called “mid-course correction,“ and there are two key results of that which may at first seem contradictory, but which I think are in fact complementary. The first is to take what was already a highly-focused foundation, with clear strategic objectives in our four programme areas and seven geographies, and make it even more so. We will move out of several areas where we don’t have sufficient traction, and drill down further into those where we do. At the same time, we have shifted more money to a “Venture Fund” which will allow us to move quickly to take advantage of short-term opportunities, particularly in the policy realm which is, to borrow another Bill Roberts’ phrase, our “sweet spot.” You might call it strategic opportunism, and it has permitted us to make the largest-ever grant for advocacy to a health care coalition that is now poised to work with the new President to repair the largest gap in the U.S. social safety net, and to work with Barbara Hogan, the progressive new health minister who is ending years of AIDS denialism in South Africa.

If there is another shift in Atlantic as we enter the last eight years or so of our grantmaking, it is that we have considered what our legacy means and come up with a somewhat different answer than when we first thought about it some years ago. Originally we thought that our limited time-horizon obligated us to take on only those issues where we could have a reasonable chance of success within that span – not ending poverty, for instance, but abolishing the death penalty or strengthening indigent defense systems in three selected states. Our earlier goals had the virtue of specificity and up or down measurability, and that is attractive. But policy successes come and go – we thought we had abolished the death penalty, for all practical purposes, in the U.S. in the early 1970s, only to have it come roaring back. What is enduring, though, is the strengthening of institutions and the building of leadership that will be strong and able to take on the challenges of human rights or disadvantaged youth or public health or aging long after today’s fleeting policy battles, and long after Atlantic is gone. So operating within an explicit framework of promoting social justice in all we do, Atlantic will deepen the already significant commitment it has to building the capacity of key institutions and movements in the fields we have chosen to focus on.

Mark Twain famously said, of the prospect of death by hanging, that it “powerfully concentrates the mind,” and that is surely true for the death of an endowment. Everything weighs more, and counts more. But that seems a dark spot on which to end this talk, for what I have found most true is that it is fun to approach this challenge – indeed, liberating. So I will close instead with the words of my friend Lewis Cullman, a vigorous patron of arts, education, democracy and human rights who with his wife Dorothy is busily spending their fortune on philanthropy. “What I learned as a little boy from my mother,” Lewis says, “I don’t care what people say about me when I’m dead. I won’t be around to hear it. Why not get the joy out of spending your money while you’re alive?”