Accompanying our recently published research on the approaches of limited life foundations, CEP produced accompanying case studies of three of the foundations featured in the report, titled A Date Certain: Lessons from Limited Life Foundations. Here, we share the first of the three cases, on the S.D. Bechtel, Jr. Foundation, a family foundation in San Francisco, CA with 35 staff that, through its Education and Environment programs, pursues a vision of a productive, vibrant, and sustainable California that is a model of success and a source of innovation. The foundation plans to spend out its $386 million in assets (as of 2015) by 2020.
You can download the full case studies here.
Why the decision to spend down?
According to Lauren Dachs, president of the S. D. Bechtel, Jr. Foundation and daughter of founder, Stephen D. Bechtel, Jr., there was more than one reason the foundation made the decision to limit its life in 2009. First, and most important, was the potential for impact. With a limited time frame, the foundation could apply significantly increased resources to a set of challenges, identified by the field, in the foundation’s areas of interest. The second reason answered a more philosophical question: How well could the founder, or anyone, predict the future? In a letter written the year before the decision was made, Mr. Bechtel expressed his reasoning to his fellow board members:
It is more important for the foundation to focus on the contributions that we see as the highest priority near-term charitable needs, and let future generations of charitable contributors determine, in the future, the greatest needs of their time.
A third, although not determining, factor was related to succession. It wasn’t clear who would lead the foundation once Dachs retired. The foundation does not advocate limited life for all foundations — in fact, its leaders see good reasons for perpetuity in many cases. Given their particular context, the founder and the board saw spending down as the right choice.
How has the foundation approached the process of spending down?
When the decision to spend down was made in 2009, the foundation defined a seven-year horizon and a sunset date of 2016. But that date was quickly extended to 2020. Dachs explains,
The program areas and issues we were trying to tackle were highly complex and would require more time if we wanted to catalyze lasting change. Once we started down the track and realized what had to be done — building the staff, refreshing our strategies, focusing sharply on where there were windows of opportunity in our time frame, and building a learning agenda, to name a few things — we realized it was going to take longer than we thought.
That fact, along with an annual additional influx of money from Mr. Bechtel — $814 million total since 2009 — increased the magnitude of the task and caused the date to be pushed back to 2020.
The foundation is currently in its most intense period of grantmaking to date. It has identified organizations to support in its issue areas and, in most cases, is providing large, multiyear grants. For 2017, however, the foundation is forecasting a gradual decrease in grants and dollars, beginning a four-year arc to sunset. On the investment side, the foundation has significantly de-risked its portfolio. “We had to determine a point — and hopefully the right point — at which to become more conservative to make sure that we had the funds on hand to meet our multiyear grant commitments and our operating expenses in the out years,” says Patricia Leicher, former chief financial officer.
What changed with the spend down?
After the decision to spend down was made, the foundation gradually narrowed its focus — one of the most important shifts in its spenddown journey. In general, the foundation shifted from direct service grants that largely benefited the San Francisco Bay Area to defined initiatives aimed at statewide or national systems change. As Dachs explains, the grantmaking focus shifted to one geared toward “figuring out how systems are engineered — functionally or dysfunctionally — and getting to the root causes of problems, as opposed to treating symptoms.”
This shift in focus and breadth meant taking a hard look at the foundation’s existing funding areas and, in many cases, exiting longterm relationships with grantees. The foundation looked carefully at the fields it was funding when determining where to scale back. For example, the foundation had funded Alzheimer’s research but realized that it didn’t have the relationships in the field or the depth of expertise on staff necessary to make large-scale impact in a limited time frame. In areas like this, where grantee relationships need to be exited early, the foundation offers generous, flexible final grants that often included a capacity-building emphasis.
A shift in focus cannot occur overnight, and Dachs notes that the process has taken time. It has required training staff in a new way of thinking, which included learning how to exit grantee relationships responsibly, while at the same time searching for new organizations to further the goals of major initiatives and systems-change work. Dachs explains that in some cases — notably in connection with the foundation’s youth character-development work, its only national initiative — the foundation made “get to know you” grants to organizations to figure out whether multiyear funding and relationship building made sense. This was a time to “dig into these organizations, understand their leadership,” and get feedback, with the goal of identifying organizations with missions that substantially aligned with the foundation’s goals — and not those that might be led to make changes to their work or mission to “chase the money and try to fit into the foundation’s portfolio.”
As a result of the limited amount of time to spend down, a smaller portfolio of grantees, and an eye toward field-building and systems-change work, the size of foundation grants also changed dramatically. In 2008, the year before the decision to spend down, the median grant size at the foundation was $25,000. In 2014, the median grant size was $100,000 and many initiative grants exceeded $1 million.
What challenges came with the decision to spend down, and how did the foundation address those challenges?
The decision to spend down caused the foundation’s staffing model to change fundamentally, as it had to increase the size of its staff to spend down. The shift away from direct service and toward fieldbuilding and systems-change work, as well as the amount of money the foundation seeks to deploy in a short period of time, were driving factors in this change.
The foundation’s staff grew from nine in 2009 to 35 in 2016. This growth created a number of challenges. “As we brought all these new people into the foundation to help us execute the work we
wanted to do, we had to grow and further define our culture,” Dachs says. “We had to become a different organization.”
For example, the foundation had to develop structure — creating hierarchy, a senior management team, and formalized policies. The foundation had to find the right staff who could “hit the ground running,” and who could “help implement, rather than develop, strategies,” Dachs says. “For our team there is a strong emphasis on project management and grant monitoring, as well as the due diligence and grantmaking that is common at perpetual foundations.”
Now that the foundation is fully staffed and its leaders have taken the steps to implement the structures and culture of a larger organization, thinking about the next chapter for its people has emerged as a priority. Staff members have professional development plans and engage in regular discussions with their supervisors about career goals and how the foundation can help
prepare them for their careers after 2020.
The foundation is launching a transitionassistance fund, offering financial support to allow staff to focus on the work at hand and not be distracted by concerns about their next career move until the foundation has closed its doors. Dachs explains, “We are growing knowledgeable, passionate people in the foundation around our program areas. We need to ask ourselves, ‘How can we make sure that we do everything we can to support them and prepare them to continue the work and to lead?’”
How has the foundation communicated the spend down with grantees?
For the foundation, one of the most important elements of communicating about the spend down is to ensure that grantee organizations are prepared financially for life after its funding ends. “Communication with grantees receiving final grants occurs early and often so that grantees have adequate time to prepare for the loss of foundation funding,” says Parker Sexton, research associate.
Giving significant amounts of money in a short period of time can pose dangers, as it can lead organizations to grow quickly and expand without knowing what will replace the money several years down the road. To mitigate this, the foundation is working closely with grantees, well in advance of the final grant, to look at questions of dependency, longer-term financial sustainability, and overall resiliency.
How is the foundation planning to evaluate the efficacy of its approach to limited life and communicate what it learns to other funders?
The foundation has made a concerted effort to increase its commitment to communications with regard to the spend down. “We feel a responsibility to share with the field, especially because we’re leaving,” Dachs says. The foundation has commissioned external evaluations in connection with many of its major initiatives and plans to share the findings broadly. The foundation is also discussing the possibility of one or more retrospective reviews that would be commissioned before the sunset to examine the field-level impact of the foundation’s work. And there is ongoing work within the foundation to document the spend-down process and lessons learned. The foundation hopes this approach will result in learning and insights that “will be some of the most important things that we can leave behind,” Dachs says.
What advice would you give to other funders in the process of spending down or considering the decision to spend down?
Leaders from the foundation stress the importance of maintaining flexibility during the spend down and budgeting to allow for unanticipated opportunities. “You don’t want to be in a position of clawing money back from program budgets to take advantage of an extraordinary opportunity you didn’t see before,” says Barbara Kibbe, director of organizational effectiveness. To prepare for this possibility, the foundation set aside funds for special opportunities, including grants initiated by the founder. By doing so, the foundation has been able to pursue its strategic goals while also making grants for special projects without destabilizing any of its core programs.
The foundation also recommends that others study the impact of their exits. Dachs says,
There was really no place for us to go for comprehensive guidance about how to exit responsibly from long-term grantee relationships or from field-building work. We don’t want to harm or handicap organizations, and our goal is to build fields to be sustainable. Of course, only time will tell, and we will try to leave behind lessons and insights from our own experience. We hope others will join us in contributing to building a stronger base of knowledge about how to exit responsibly and impactfully.
Download the full publication of case studies here, and download A Date Certain: Lessons from Limited Life Foundations here.
Ethan McCoy is senior writer – development and communications at CEP.