Private Foundations: Best Practices to Enhance Effectiveness and Impact

The most effective private foundations are those that take advantage of the best strategies, methods and tools. Here, we highlight several key best practices, which, if applied, can offer foundations profound benefits and improve their effectiveness.

A CLEAR MISSION

In most cases, effectiveness starts with a clearly defined goal. History has shown that the greatness of a foundation—as measured by its impact on the world—is determined by the founder’s (or board’s) sense of mission.

A foundation’s mission is an explicit, even emphatic statement of philanthropic goals. And, certainly, many founders keep their “mission statements” largely in their own heads. But even if a founder spends his or her life as a “living example,” it is helpful for successors to have a clear and easily understood mission statement in writing to guide their activities and funding decisions over time.

GOVERNING FOR EFFECTIVENESS

“Governance” is the term for those formal and informal rules by which a foundation makes decisions. There is a wide range of governance structures for foundations, but these structures usually center on a board, charged with implementing the founder’s vision and the foundation’s mission.

In our experience, most founders want to bring others into the enterprise—in particular family members if they want to begin establishing a legacy. Hence, we recommend having at least three board members who can provide objective counsel, aid in managing the foundation and lead the organization into the future.

KNOW YOUR CHARITIES

A foundation must find out how a given charity operates, if it has a proven history, how its programs align with the foundation’s goals and how exactly it will use the foundation’s money.

Developing a true picture of this charity can take time and hard work. By reviewing the charity’s financial statements and tax returns, talking to its management and even visiting the organization, the foundation’s board can learn a great deal of factual information that will inform its grant-making decisions.

Effective philanthropy starts with employing foundation management best practices.

YOU GET WHAT YOU NEGOTIATE

Sophisticated donors realize that overhead is a part of every organization’s budget. In most cases, then, some of the money it donates will go, directly or indirectly, toward overhead. However, that amount is not written in stone. At our firm, we regularly negotiate on behalf of clients to reduce the amount of a grant that goes to overhead and increase what goes to the program our clients wish to support.

PERIODIC VERSUS ENDOWMENT SUPPORT

Another important decision is whether to give periodic or endowment support to a charity. Periodic support entails incremental gifts over time, while endowment support offers grant money all at once. If a foundation’s charitable goals (or if a charity’s programs) change, the foundation has already committed the endowment money and has lost any leverage to ensure that the charity meets the foundation’s charitable intentions. Thus, we generally recommend periodic support because it gives a foundation more control.

MEASUREMENT

It is important for foundations to ask, “How will we determine whether and when our philanthropic goals are being achieved?” Keep this question in mind when evaluating charities and programs, and pose the question to their officers.

We have found that charities themselves are often in the best position to measure effectiveness. As foundations evaluate charities, they should pay attention to the charities’ own attitudes toward measurement. The best charities will welcome questions about their success; will have thoughtfully considered measuring their performance; and will provide informed answers.

If a charity tries to steer a foundation clear of measurement, that’s usually a signal for the foundation to think twice before supporting the charity.

CONCLUSION

If there is one point we wish readers to take away, it is that giving away money and making that money perform is hard work. If a foundation doesn’t get that work done somehow—whether the directors do it or it is delegated to professionals—that foundation is wasting a portion, perhaps a large portion, of every dollar it grants.

Thus, it is imperative that foundations explore their options and employ methods that will make their charitable giving as effective as possible.

This article was originally published in the May–July 2017 issue of Worth.