Five Steps to a Successful Spend Down: Operational Priorities
By John Hoover
As was previously addressed in the most recent ACBP series blog, there is limited content available on the process of how foundations spend down.
Below is a list of financial and operational priorities that we believe are important to consider in the beginning stages of spend down, and to monitor throughout the spend down process.
1. Determine when to spend down and how to communicate it.
- Is the foundation’s lifespan long enough to make program adjustments as well as corresponding financial adjustments?
- What is the most strategic way to align the fund’s finances with the spend down timeline? Is there a governance structure in place to periodically revisit this?
- Tactically, does the foundation balance risk with return and expectations with commitments while keeping reasonable flexibility even as the sunset date approaches?
- How and when will the spend down be communicated internally? What level of detail do you share? Is it shared across the organization?
2. Establish staffing and administrative strategies.
- Will there be a downsizing effort? What is the timeframe?
- Will there be severance guidelines established based on position type, tenure, etc.? If so, how and when will decisions transparently be communicated to staff?
- Is the foundation open to helping transition staff to opportunities inside and outside the organization? Are there guidelines for outplacement services, continuing professional education, and referral services? For key staff with valuable institutional knowledge, have you considered a consultancy engagement during the transition?
- Have retirement plans been considered and a plan implemented to ensure they are fully funded by the foundation’s closing date? Are supplemental retirement plans being considered?
- How will the roles of the staff change while transitioning from a funding source to a knowledge institution?
- How will staff stay motivated throughout the spend down? Will there be incentives for colleagues who agree to stay until the end?
- If the foundation has a lease, is the timing aligned with the spend down date? If not, what is the alternative?
- f the foundation owns a building, what will be done with the property, and on what timeline?
3. Examine financial strategies.
- How should the foundation’s investment strategy and portfolio change as the closing date approaches?
- How much cash is required every quarter to carry out planned program priorities?
- Is there adequate liquidity in the portfolios to fund distributions over time?
- Should credit strategies be considered or resolved?
- Should a sensitivity analysis be carried out to determine the best and worst case financial scenarios to minimize liquidity risk and ensure program commitments and timelines are realistic?
- Has the insurance program been adjusted accordingly to balance coverage with risk?
4. Agree on the closing date details.
- Are all financial obligations, legal issues, and claims resolved?
- How are furniture, equipment, and art to be handled?
- Should arrangements be made for maintaining a website post-close, even if stagnant? If so, how will hosting and maintenance (if needed) be paid over time?
- Have important legacy documents been organized and codified? Where will the relevant documents be archived and stored after closing, and will additional funding be required? Will they be secure, easily accessible, and ready for transfer?
- Who will be the contact person designated for possible future inquiries?
- Will there be a celebration or “life” publication to recognize the milestones and impact of the foundation?
- Have all “wind up” steps that lead to proper dissolution been undertaken?
- Will the final year be audited? When the foundation issues a final tax return and files with the state’s Attorney General indicating all assets have been distributed, will reserves be considered to pay the residual fees and expenses?
5. Determine post-close strategies.
- What will happen to the institutional knowledge created and accumulated throughout the foundation’s lifespan?
- Will this knowledge be archived by a partner, library, institute, university, association, grantee, or a related foundation or organization?
- Will the archives be available publicly or maintained privately?
- If any intellectual property (e.g. publications, copyrighted materials, trademarks, etc.) was developed, who will determine its future use?
We hope this blog, in tandem with the previous post on strategic priorities, will help other foundations as they consider the priorities and tackle the challenges of sunsetting their organizations. There is not one correct way to answer these questions or to approach spending down. Do you have any lingering thoughts or perhaps additions from your own question list? Share them in the comments below.
John Hoover is Senior Vice President and Chief Financial Officer of The Andrea and Charles Bronfman Philanthropies.
[eJP note: “Making Change by Spending Down” is a new commentary series of The Andrea and Charles Bronfman Philanthropies (ACBP) – in partnership with the Foundation Center – to share insights and lessons of ACBP as it spends down its endowment by 2016 and closes. Each month various stakeholders will contribute new posts that will explore how ACBP’s decision to spend down affects a broad range of interests: from mission, employees and grantees, to investments and legacy. Decision makers across the social sector will benefit from the first-hand knowledge and community of learning being created.