Should Every Foundation Sunset? Weighing the Pros and Cons

The philanthropies founded by Rockefeller and Carnegie celebrated their centennials years ago. And the number of private foundations that have been in existence for more than half a century keeps growing: Ford, Hewlett, Mellon… the list goes on.

While existing in perpetuity has long been considered the default for private foundations, the idea that a grant maker should spend itself out of business is becoming more popular. According to a survey of more than 500 foundations conducted by the National Center for Family Philanthropy, 13 percent of foundations have plans to sunset, and one in four are discussing the possibility.

Proponents of placing a time limit on a grant maker argue that problems today, whether it is climate, the state of democracy, or poverty, are so crucial that it is irresponsible to hold money in an endowment rather than put it to use.

Defenders of the perpetual foundation argue that some problems will only be solved over generations, and that lasting grant-making institutions provide a bedrock of support over the years.

Both strategies can generate significant social impact, according to Romanita Hairston, president of the M.J. Murdock Charitable Trust, which is designed to operate in perpetuity. The trust, she says, discusses whether to change its format and spend down on a regular basis.

The key is for a foundation to match its spending strategy to its purpose, Hairston said. If it wants to build research capabilities or support democratic institutions, those might call for a foundation to have a lasting presence. But spending down might be an option if a foundation wants to capitalize on an open policy window, such as implementing a large piece of legislation or supporting advocacy around a particular issue that has captured the public consciousness.

“The question isn’t which model is superior,” Hairston said. “It’s whether foundations understand their theory of change well enough to choose the right approach.”

Here are some common arguments made in support of each choice:

Spend down

More wealth is on its way. Why not spend down when we are on the verge of a massive intergenerational transfer of wealth as baby boomers die and leave their estates to their children — or charity.

Urgency of the present. The problems today are so critical that keeping money invested in an endowment is irresponsible when it could be directed to social change.

Safeguarding donor intent. Why worry about that off-kilter grandchild throwing your fortune at issues you don’t care about after your death. Spend now!

Policy windows. Sometimes a topic is in vogue, or there may be an opportunity to shape public debate on an issue if more funds are directed to it.

Exist in Perpetuity

Perpetual foundation, perpetual need. No matter what, there will be problems that future generations will need to address. Their health, safety and well-being is just as important as the current generation’s.

Staying put when others leave. Sometimes public interest in a topic recedes, and funding dries up. Existing over the long haul allows foundations to support nonprofits when public attention is elsewhere.

Filling in the map. In many geographic regions, particularly rural areas where there aren’t a lot of active funders, a foundation spend-down would dry up philanthropic resources for a whole cadre of nonprofits

Beyond a wallet. Building a longstanding institution allows experts on staff to establish a reservoir of information and data about a topic over time, gives a foundation the ability to gather a wide array of internal and external experts on a topic, and gives the foundation heft when speaking out on an issue.