Watch out! Spend-down foundations are changing the meaning of impact

Who wants to live forever? Not spend-down foundations, apparently.

The so-called “spend-down” foundations are those which see their leaders committing to spend their capital rather quickly to achieve maximum impact, as opposed to the concept of “in-perpetuity” which refers to the fact that foundations are meant to exist forever.

Let’s start with the latter. Since Andrew Carnegie’s Gospel of Wealth, published in 1889, old founders like John D. Rockefeller believed they were creating institutions which could last forever, fostered by the view that the essence of foundations was the redistribution of wealth towards less fortunate people. Consequently, foundations would ideally last until inequalities and redistribution issues ceased to exist in our world – we may say “forever” without sounding too pessimistic? The Rockefeller Foundation social investing guidelines still contain the explicit reference to the in-perpetuity nature of the Foundation, originated from the spirit which animated the founder in 1913. Also the Wellcome Trust, set up in London in 1936, is steered by a group of governors who have the task to preserve the in-perpetuity principle embedded in the vision of Sir Henry Wellcome. More than a century later, these foundations, like any other, are pressured to demonstrate their impact to justify their existence.

On the contrary, newer founders like Bill Gates (just to mention the usual suspect), proudly mark a distance with the in-perpetuity approach by setting up foundations which aims at making a massive impact in the shortest time possible. The origins of these foundations and the scope for which they were created are in strong opposition with the long-term view expressed by old, traditional founders. The foundation seems to be, indeed, just the most suitable organizational form to reach the personal objective of the founder: achieving “as near as possible” impact. It is not only a matter of individual ego: spend-down foundations implicitly challenge those traditional foundations criticized for they “sit on their money”, meaning their permanent endowments tend to lessen the amount available for immediate needs. New foundations pre-determine explicitly their own institutional end, designing strategies aiming at closing down in the short time – whether in ten years (like the Edna McConnell Clark Foundation) or after the death of their founders (like John Olin did, apparently motivated by the fear that its foundation would lose its way without his guiding hand). In doing so, they have the very practical problem of spending huge fortunes quickly.

Even with the same visions and missions, do in-perpetuity and spend-down foundations really behave differently in their grant-making? Well, the answer is yes, really.

Let’s take the example of health. Some of the above mentioned foundations invest in health research. Their missions are indeed very similar. Despite this, their funding approach (what I like to call funding ethos) is extremely different. The Wellcome Trust has always had an ethos of picking and investing in people, rather than in projects or products. The guiding belief of the Trust, easy to spot from its official documents, is that supporting people’s invention and discovery allows for greater innovation and creative approaches: the recent shift of the Trust from project-based grants to strategic awards may be a good point to reflect on the long-term view aimed at building the capacity of health researchers and scientists. In a quite uncommon way, the time range of grants of the Trust has proven to increase, not to decrease in recent years. Even in low- and middle-income countries (LMICs), the Wellcome Trust has traditionally funded capacity-building as a sign of investment in these countries’ institutions, universities and research capacities. In fact, the major overseas programmes of the Trust are now embedded in local institutions (see for example the H3Africa Initiative).

The Rockefeller Foundation has always had a similar experience – although controversial during the last Presidency (2005-2016). The funding ethos of the Rockefeller Foundation has always been that of a foundation which holds an unprecedented and unbeaten record of grants addressed to research and public institutions’ capacity-building, contributing even to the constitution of what would have then become the World Health Organization in 1948, to the development of several public health schools around the world, to the foundation of Universities and public education institutions in the United States and abroad, well before international philanthropic funding became a common practice of North-American philanthropies.

Spend-down foundations, on the opposite, are much more focused on product development and technological solutions. Focused on LMICs, where technology has a transformative power (more than in mature economies), they aim at eradicating diseases, not at funding health research institutions, universities or ministries. Capacity-building requires time, and time is always a constraint in spend-down foundations. With this ethos, spend-down foundations seem paradoxically closer to commissioning research on objectives already set by their leaders, rather than funding the “creative element” of people.

 So what the practice of setting up spend-down foundations is bringing to philanthropy?

First, while in-perpetuity foundations are closer to a capacity-building orientation, spend-down foundations are inherently pervaded by a short-term orientation of funding. The consequences of this may be relevant if you are a grantee – or if you are just a person concerned about the destination of philanthropic funding. If spend-down foundations become more and more popular, we could expect philanthropic funding to get much closer to commissioned research and top-down decision-making, rather than to collective research and participatory approaches.

Second, the debate on impact will become even harsher. It seems easier to measure the impact of short-term, product development solutions, than the impact of long-term, capacity-building and collective research projects. If the debate on impact is already lively in philanthropy, are we equally equipped to measure both kinds of impact? And is it fair enough to ask ourselves which kind of social impact – if any – we would expect to see planned, monitored and measured by philanthropic actors?

Third, different funding ethos may undermine collaborative practice between foundations. The Gates Foundation was born out of the idea that technology is transformative, as well as the Wellcome Trust was born out of the idea that people are the drivers of social change: none of these position is arguable, but it is extremely difficult to imagine a collaboration between two philanthropic institutions which holds such different values – actually, they have proved to be the first reason why top executives of both foundations do not see collaboration as a possible way to take most of the times – despite investing in the same health problems.

Fourth, spend-down foundations open an avenue of research for the cultural approaches and cultural studies on philanthropy. Some may think that the spend-down phenomenon is consistent with the business origins of new leaders; however, both Andrew Carnegie and John D. Rockefeller were successful businessmen at their time (apparently, John Rockefeller is not only the richest men ever lived on earth, but he also is the “inventor” of strategic management approaches in philanthropy). Some may think that a different funding ethos is related to the specificity of different countries’ cultures: North-American foundations a bit bolder and more familiar with the individual ego of self-made men (and philanthropists), UK foundations less “pushy” and more reserved. This area would definitely deserve further exploration.

Whatever the case, we should keep an eye on the message coming from spend-down foundations in changing the time range of our thoughts on impact. How new philanthropies will react to this? How Indian, Chinese, Russian, South Africans, Brazilian, Mexican, Saudi Arabian philanthropists look like? Stay tuned for updates…