In Defense of the Forever Foundation: Why Perpetuity Will Always Have a Place in Philanthropy

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For a while, the debate over perpetual versus time-limited philanthropy seemed settled in favor of the forever foundation. Perpetuity was the default, and funders who chose to sunset were definite outliers — particularly if they had lots of money to spend.

Today, though, the idea of the perpetual foundation brings with it a definite whiff of obsolescence. Spending down is in fashion, and while it’s still far from a default position, some of today’s most consequential philanthropists — MacKenzie Scott and Bill Gates, for instance — seem to have taken cues from Chuck Feeney, who gave away $8 billion and exited the philanthropic scene a mere millionaire. Meanwhile, other major philanthropies and a host of smaller funders have been exploring time-limited giving, or, at minimum, increased payout.

This is a good thing. It’s largely a fluke of philanthropic history that perpetuity went from defending its right to exist to assuming its longtime place as a default setting for foundations. (Zealous investment officers, tax lawyers and accountants played a role, of course.) Over the years, IP has come down pretty hard on foundations’ stubborn tendencies to sit atop their ballooning endowments while doling out the 5% minimum annual payout, come hell or high water. The present dethroning of perpetuity makes particular sense in an era that has seen big new fortunes coming online all the time, alongside immense need and inequality. 

Still, the perpetuity model has some definite advantages that funders and the wider philanthrosphere shouldn’t discount. Below are several reasons why the forever foundation remains a viable option, and perhaps even a preferable one, despite having fallen out of favor recently.

(A lot) more money over time

It’s the most obvious advantage of sticking around. Foundations that commit to perpetuity and give away around 5% of their assets each year will end up moving out vastly more money than they could have done with their initial endowment alone. To take a classic example, Henry and Edsel Ford left their foundation the equivalent of about $4 billion. Over the decades, Ford has made total grants well in excess of $50 billion in today’s dollars. Since 2006, its grant database shows nearly $10 billion in giving, and its current endowment stands at around $16 billion.

Suffice it to say, the perpetual Ford Foundation has made, and will make, a bigger splash over the long term than a time-limited Ford Foundation ever could have. And not to denigrate the worthy work of Chuck Feeney’s Atlantic Philanthropies, but if we were to look back and adjudicate overall impact, there seems little doubt Ford and other perpetual heavy-hitters would come out ahead of even the largest spend-down philanthropies we’ve seen thus far (MacKenzie Scott, ever the outlier, may turn out to be a big exception).

The counterpoint here is that perpetual foundations power their everlasting giving by investing conventionally for the greatest return. There’s an argument to be made that such investments can run counter to foundations’ actual grantmaking, maybe even “canceling out” the good being accomplished. But as divestment from harmful industries catches on, along with alternative practices like ESG and impact investing, that objection loses some of its teeth.

Perpetual grantmakers can evolve with the times

Here’s another case where the benefit is in the eye of the beholder. For those of us who like the approach of, say, the Ford Foundation — or the Kellogg Foundation, the Rockefeller Foundation or the Carnegie Corporation — it’s been a blessing to see their evolutions from old Gilded Age roots toward more liberal and progressive grantmaking. As long as perpetual foundations are given a broad enough slate in terms of mission, they can adapt over time, tailoring their giving to the conditions and needs of the day. 

This is, of course, exactly what many conservatives don’t like about perpetual philanthropy. In their desire to safeguard donor intent, some conservative foundations were among the first to question perpetuity as a default model late last century. And today, right-leaning powerhouses like the donor-advised fund sponsor DonorsTrust have safeguards built in to ensure eventual spend-down, even while DAFs (and foundations) are subject to no such rules from the IRS. 

I’d argue, however, that perpetual foundations’ ability to evolve beyond the original donor’s worldview can make them a useful counterweight to the vast power of living donors in this new Gilded Age, ensuring that, at least on some level, people with more diverse, less privileged backgrounds can wield power over where philanthropic money goes. 

Spending down now won’t “solve” much

Given the numerous, overlapping crises we face as a nation and as a planet, calls for much greater philanthropic spending make a lot of sense. Here at IP, we’ve repeatedly called on the very wealthy to abandon their habit of philanthropic stinginess and look toward contemporary models of largesse, like MacKenzie Scott.

What’s also true, though, is that there’s only so much money in philanthropy, both in terms of what’s already committed to foundation endowments, DAFs and the like, and what the very rich are reasonably likely to commit going forward. For all its billions, philanthropy is still a bit player next to the trillions in other sectors. And so some degree of modesty is in order about what spending down now can really accomplish, especially if the goal is to “solve” entrenched problems and not just apply Band-Aids.

Helping those in need now is always a worthy aim. But spend-down philanthropies must do so in the knowledge that addressing present need often does little to eliminate future need. (Some “long-termists” have even gone so far as to criticize spend-down philanthropy for privileging current lives over future lives, but that’s admittedly a niche position.)

Foundations that stick around can build up institutional knowledge and expertise

Earlier this year, I wrote a defense of the foundation — particularly the larger staffed variety, another philanthropic form in danger of being labeled a dinosaur. One main point there was that while they’ve received justifiable criticism, including from us, places like the Gates Foundation do indeed have something to offer beyond just boatloads of money. 

Ideally, the perpetual foundation’s people — and the institutional knowledge, connections and expertise they build up over time — make it a source for civic-sector strength and legitimacy, along with its independence and orientation toward practical problem-solving. That can be true at the national and international level, via places like Ford and Gates (the latter of which might just be too big to spend down). But it can also hold on the local level, and among smaller funders of niche causes and movement grantees. Some of the most stalwart progressive funders we write about are not time-limited. That can give them the space to develop relationships and sustain movements over the time spans necessary to cultivate grassroots power.

A false dichotomy

In the end, it’s probably a good thing that the old canard about “saving money for a rainy day” has been lambasted for the cop-out it so often is. When so many foundations literally value their chief investment officer more highly than their chief executive (not to mention the folks actually doing the grantmaking), obsessive endowment-tending is due some criticism. 

As former F.B. Heron Foundation President Clara Miller put it in a recent Q&A, “Let’s go back 20 years, to 2003. Or even 50 years, to 1973. Are we saying, ‘Thank goodness those far-sighted foundations didn’t spend more money then?’ I haven’t heard that, ever.”

But as Miller also forcefully argued, the whole perpetuity versus spend-down debate reeks of false dichotomy. There’s nothing stopping foundations of any size from pursuing a middle ground of increased payout with no immediate plans to sunset. Likewise, there’s no rule dictating that foundations must either spend out or do everything in their power to protect their core endowments. 

Perpetuity versus spend-down has everything to do with fiduciary and investment norms, and the moral fads of the day. Philanthropy can choose to adhere to whichever happens to be the fashionable default. But as one of the most independent sources of funding around, it doesn’t have to.