At this month’s Council on Foundations Philanthropy Summit, foundation representatives from around the world gathered to discuss of one of the hottest emerging issues in family philanthropy: the question of perpetuity.
“For most of the history of private foundations, perpetuity was not a much discussed issue, it was a given,” noted Ginny Esposito, founder and President of the National Center for Family Philanthropy and moderator of the the session entitled “Perpetuity is a Long Time.” “If you chose a private foundation, it was assumed that one of the reasons you chose it was because of its capacity to exist forever.”
The majority of foundations still keep to this image. The Foundation Center found in 2004 that 69.3% of foundation respondents expected their foundations to carry on in perpetuity. Nine percent did not, and 22% were undecided.
However, this picture is changing. More new donors are embracing a “giving while living” ethos and choosing a limited timeframe for their giving vehicles. Older foundations trying to engage new leadership discover just how hard perpetuity can be.
The issue has special significance for family foundations whose commitment to a family legacy is often as strong as their passion for making a difference. How does a family decide the question of how long the fund should last? And how do they act on their decision in light of the legacy and community needs?
The session’s presenters—Alfred Castle, Executive Director and Trustee of Hawaii’s Samuel N. & Mary Castle Foundation; Dr. Astrid Bonfield, Chief Executive of The Diana, Princess of Wales Memorial Fund in the United Kingdom; and Daniel J. Bader, President of Milwaukee’s Helen Bader Foundation—each offered a different answer.
This month’s Family Giving News reviews why some families choose perpetuity and others look for alternatives, and points to how your family, whatever your timeline, can address this question.
Perpetuity is a Long Time
Families choose to create a perpetual foundation for a number of reasons. Prominent among them is the desire to ensure charitable funds are available to meet future community needs.
“Investing for growth over the long term generates increasing flow of charitable capital to address problems now and in the future,” Esposito noted, mentioning the story of one Texas family’s journey in philanthropy.
“Their donor originally left $28 million to the foundation,” she said. “They’ve given away $600 million, and they have $1 billion in assets.
The Castle family’s decision to create a perpetual foundation, now the nation’s oldest family foundation, in 1894 was a combination of Mary Castle’s vision of a “century-long project” in Hawaii and a little historical circumstance.
A prominent graduate of Oberlin College and a staunch opponent of slavery, Mary Castle had a dramatic vision for Hawaii, one of greater equity, social justice, and opportunity.
“Her social change theory was the theory of early education,” said Al Castle, the foundation’s executive director, noting Mary Castle’s close association with Chicago progressives like John Dewey and George Herbert Mead, her son-in-law. “She asked: ‘How long will it take to get to the type of community that we want in Hawaii? To get to that type of community, every child had to have access to high quality kindergarten, to care, nutrition, to good family support, to safe and healthy community. It was at least a century-long project.”
Thankfully, the world had recently produced just the sort of institution that could be around to help realize this vision. According to Al Castle, the law surrounding the kind of philanthropic institution Mary Castle wished to create was still developing in the latter half of the 19thcentury, but it had delivered the corporation: “a hypothetical entity that would live beyond the lives of the individuals who are involved in its governance.”
“She adopted the corporate model,” Castle said. “She had the legal means to do that which hadn’t been available 40 or 50 years earlier. She was truly a pioneer. There were very few examples of permanent corporate foundations at that time.”
Thus, the Samuel N. & Mary Castle Foundation was created in perpetuity and had the time to fight for education reform, specifically the introduction of kindergarten education, which Hawaii adopted in 1943—nearly 50 years after the Foundation’s creation. Today, the family is still focusing on education.
Others create a foundation as a way to engage a family forever, to create a legacy of the things for which they wish to be remembered.
“When I interview founding donors, it’s [this motivation] that many of them will talk about,” Esposito said.
Other families choose a different path and limit their foundations’ life spans at the outset or decide to change course and close shop. Today, perpetuity is no longer a given but one choice among many.
The Diana, Princess of Wales Memorial Fund was created in the wake of Diana, Princess of Wales’ death in September 1997.
“The fund was developed very quickly to deal with the outpouring of funding from the public and Elton John’s single ‘Candle in the Wind,’ which in and of itself raised 38 million pounds for the fund,” noted Dr. Astrid Bonfield, the fund’s chief executive.
The decision to spend down in a few years was made early on, given the obligation to spend the public’s money wisely and in a timely way. The fund just announced its sunset date: 2013.
The fund took up Diana’s humanitarian work, focusing on disadvantaged and marginalized people.
“It’s not just the financial assets that are of interest to us as an organization,” said Bonfield. “We have a unique name and association. It’s really been about how we can leverage that name to create sustainable change now.”
“It focuses the mind,” she said. “We’ve got this amount of money left. We’ve got five years left to [give it away]. How can we go out and change the world? Because that’s what we intend to do.”
The fund’s spending has paid off, particularly in the development of a ban on land mines, a cause close to Diana’s heart. The fund is a founding member of the Cluster Munition Coalition and a prominent funder and convener in the effort to ban these weapons.
Bonfield says that, due to the coalition’s work, a comprehensive treaty to ban cluster munitions signed by more than 120 states is expected by the end of the year.
Helen Bader certainly had impact in mind when she left her share of the family business to what would become the Helen Bader Foundation, but she had family in mind when she made the decision to spend down. The foundation is organized as a set of trusts that will eventually run out.
“We started the foundation in 1992,” said Foundation President Daniel Bader, one of Helen’s three sons. “In 2019, the spigot gets turned off. We essentially spend the money as we get it.”
“During the last stages of her life, she very clearly stated she wanted her sons, ‘her boys,’ to spend the money,” Bader said. “She wanted us to be involved in the philanthropy. None of this conversation [about perpetuity] was part of the decision. It was really her desire to have her sons be involved: ‘my boys are going to give this money to charity.’”
“We have been spending out at rate now of around 10%,” he said. “When we first started this in the early 90s, the spending was very loose.” The foundation makes grants in diverse fields— Alzheimer’s and aging, early childhood development, economic development, and Jewish life and learning, among others.
“As we get closer to [the end], we start to get more and more focused,” Bader said. “I believe that as we get closer, we will continue to focus and sharpen our spending. This is definitely what she wanted. We had to figure out how to operate within this environment.”
The foundation’s limited life has pushed the foundation to find ways of securing the Bader legacy without the benefit of perpetuity. Trustees realized the foundation wasn’t doing all it could in this area during a review of their activities last year, the foundation’s 15-year anniversary.
“There were things we weren’t doing,” Bader said. “My mother was very fond of the arts, and we hadn’t done a lot in the arts.”
Regardless of the foundation’s focus, the charitable legacy will live on even after these particular charitable trusts expire. When asked if Bader foresaw the possibility of involving a new generation and continuing the family’s philanthropy, he said, “I absolutely do but not with this pool of funds. There are other funds out there, other family wealth.”
He added that the “next generation” of the Bader family was still very young.
“We’re talking about five-year-olds here, but I think in our family, there’s a strong tradition of charity,” he said.
Making the Choice
However your family has organized its giving or decides to organize its philanthropy in the future, the following tips emerged from conversations with presenters and participants.
Have the conversation about perpetuity in light of mission and family.
“Every family, every foundation, has to figure out what the best thing for them is,” Bader said, encouraging families to discuss the issue of perpetuity and decide for themselves. In light of the difference you wish to make and the family helping to make that difference, what kind of fund and timeframe makes the most sense?
Discuss the possibilities with family members and advisors. Don’t worry yet about the outcome. Naturally, different families will come down on different sides of the issue, and this is a good thing.
“One of the things that’s important to nonprofits is that there’s strong diversity in funding types,” Bader argued, noting the need for general operating support, program support, capital support, loans, and other types of funding and the different types of institutions needed to provide them in the nonprofit world. “I wouldn’t ever want to limit that pool of available funding types.”
In Bonfield’s words, “you’ve got to decide what your theory of change is.”
And once you’ve committed to your vision, continue discussing it and re-evaluating it, even if—especially if—you’re a perpetual foundation.
“I think what’s really critical for perpetual foundations as we’re bringing new family and community members on, is to revisit our mission periodically,” Castle said.
Align your practices with your timeline. Esposito noted that your decision to invest in perpetuity or to seek an alternative affects just about everything: relationships with the community and grantees, investment strategy, management—especially staffing, grantmaking focus, and governance practices. It’s important that once you’ve decided your timeframe, you choose the management, governance, and grantmaking practices that match your intended goals.
The Diana, Princess of Wales Memorial Fund streamlined its grants process to “be opportunistic in the best sense of the word,” Bonfield said. Grants of less than 500,000 pounds go through an internal staff committee. Such grants can be turned around—from request to check—in as little as a day.
“I see spending out as an opportunity to make change happen now,” Bonfield said.
The Helen Bader Foundation revisited its processes as well.
“Our governance has changed,” Bader said, noting how, in the past, the board often spent most of its time reviewing grants. “[Now,] the board spends the vast majority of its time talking about strategy.”
Communicate your decision—and your results. Whatever you decide, be sure to communicate your decision to nonprofits, to regulators, to media, and the general public.
Most immediately, nonprofits will need to know if they can continue to look to you for funding. Informing close and long-time grantees helps them anticipate change and potentially look elsewhere for necessary support.
The Helen Bader Foundation is concerned about what changes 2019 will bring to the communities the foundation has funded since 1989.
“We’ve created dependencies,” Bader said. “I’m very conscious of that. Yes, foundations come and go. Some are created every year, and some leave every year, and that’s a great thing. But I’m not sure that 20 years from now there’s going to be another player of our size in that community. 20 years from now, I’m not sure everything that we’re doing today is going to be carried on. It does make you pause a little bit.”
Meanwhile, amid growing regulatory and media scrutiny, and public skepticism of nonprofits, it’s important to communicate the results of your work.
“Those of us who are perpetual, in my opinion, owe the public an explanation as to why we are perpetual, that we have revisited the issue,” Castle said. “Here’s what we have delivered as a result of being perpetual.”
Press releases, informative web sites, and meetings with regulators go a long way to communicating and amplifying the value you create every day. Presenters encouraged talking about your accomplishments and urging similarly situated funders to do the same.
The question of perpetuity is, after all, a “how” question—how are we going to make a difference: with a perpetual foundation or one that will sunset? These communications, however, reveal to others the why of charitable giving, and a foundation’s reasons for being.
“Why do all of us do what we do?” Bonfield asked. “We do it because we want to change the world.”
For more information on questions of perpetuity consult our Passages white paper on the subject: Alternatives to Perpetuity: A Conversation Every Foundation Should Have by Deanne Stone.