By Prof. Dr. Georg von Schnurbein, Director of Center for Philanthropy Studies (CEPS)
& Dr. Alice Hengevoss, scientific collaborator at Center for Philanthropy Studies (CEPS)
For researchers, having a promising research case offered to you on a silver platter is rare. When the MAVA Foundation approached the Center for Philanthropy Studies (CEPS) with the idea to follow their process of organizational closure – their sunset – from a researcher’s perspective, we knew that this would be a unique opportunity that would allow to make an important contribution to the research on nonprofit management.
Traditionally, a foundation is established to support a cause dear to its founders, and to carry on their legacy, long after their passing. When Luc Hoffmann created the MAVA Foundation in 1994, he predefined the closing year for 2022. His idea was to focus on timely action by creating a clear time limit for impact. With increasingly pressing societal and environmental issues such as climate change, more founders choose to establish foundations whose existence is limited in time – so called sunset foundations – in order to focus on timely impact. As this approach to philanthropic action, however, is relatively recent, there is little knowledge and best practices on how to effectively manage the closing of a foundation.
For this research project, we were interested in better understanding the strategic considerations that must be taken, when closing a foundation. We compared the closing processes of ten sunset foundations from Switzerland, Ireland, the UK and the US. This allowed establishing a framework which categorizes four strategic approaches sunset foundations follow during their final phase. We refer to these approaches as Impact Accelerators, Urgency Responders, Resource Spenders, and Fade-outs. They vary according to whether the decision to sunset occurs following a well-prepared managerial decision or whether the sunset occurs in reaction to external pressures. They further distinguish as to whether the allocation of remaining funding follows the logic of spending down these resources or whether it is based on the assessment of grantee’s greatest needs. The framework is illustrated in the graphic down below and we elaborate on the four approaches in greater detail in the following.
✤ Impact accelerators
Impact accelerators (IAs) are foundations for which the decision to sunset is based on a well prepared managerial decision and where the sunset strategy is oriented towards responding to external needs.
IAs seek to maximize the longterm impact of their lifetime’s grantmaking. They aim to build a legacy by developing and strengthening a philanthropic eco-system where the achievements made are sustained and where there is room to address emerging needs for new philanthropic engagement. This typically entails a strategic shift from capacity building in grantee organizations to developing programs that involve and connect multiple stakeholders to create such a philanthropic environment.
There is a high level of managerial preparedness. The grantee management follows a collaborative approach. IAs work with longstanding grantees to jointly develop the strategic focus for the sunset phase. During this process, grantees are given more agency and ownership as they are perceived as experts in the field of activity. With the increase in workload and processes to manage, IAs can hire new staff. At the same time, great emphasis is placed on giving employees job security as well as on supporting them in their career development.
The sunset is celebrated with a formal closing even where staff, grantees and other partners are invited to celebrate the impact and legacy created.
✤ Urgency responders
Urgency responders (URs) are foundations for which the decision to sunset is triggered by exogenous factors and where the sunset-strategy is oriented towards responding to urgent external needs. Such triggers can include an economic recession or an urgent societal problem such as climate change.
URs create impact by “bridging the gap” where grantee organizations need urgent support for a limited time. During this time, grantee organizations are expected to develop their own capacities to ensure their long-term survival. URs’ legacy therefore takes the form of ensuring mid-term organizational survival of their grantees.
Grantees are perceived as experts in the field. URs work with long-term grantee organizations that are provided with urgent funding and a relatively high level of freedom on how to best invest these funds.
When it comes to human resource management, the focus lies on retention as staff is seen as most valuable resource. In order to respond fast and unbureaucratically, URs rely on staff that has good knowledge of the field as well as established relations with grantees. However, due to the urgency and fast reaction time of URs, there is a high level of uncertainty when it comes to job security for their employees.
✤ Resource spenders
Resource spenders (RSs) are foundations for which the decision to sunset is based on endogenous factors and where the sunset-strategy is focused on spending existing resources.
RSs focus on maximizing their impact during the sunset phase. Their legacy is characterized by ensuring that their grantees are ensured continuity in order to carry on the achievements made after the foundation’s sunset. There is a high level of managerial preparedness. RSs focus on grantees that fit their strategic focus for impact. To maximize their impact during the sunset phase, they will collaborate with what large established grantee organizations, which one foundation referred to as “big players”. Grantees, however, have little voice when it comes to shaping the strategic focus of RSs.
There are efforts made to reduce uncertainty among employees by communicating about job security. However, supporting staff in their career development and their time after the sunset is not a priority for RSs. Instead, RSs accept the fact that their staff is likely to reorient after the announcement of the sunset.
Fade-outs (FOs) are foundations for which the decision to sunset is triggered by exogenous factors and where the sunset-strategy is based on the need to spend existing resources.
FOs decision to sunset is experienced as an exogenous shock and the organizational strategic preparedness is low. For example, the sudden death of the founder can trigger the decision to close. There is no strategy in place to reevaluate and define the impact to be made during the sunset phase. Accordingly, the foundation maintains the same level of impact as before. With this low level of managerial preparedness there are no strategic considerations for a legacy.
As the strategy for impact during this phase is lacking, grantees cannot be selected or prepared accordingly. Typically, the same grantees are maintained without preparation for the time after the sunset.
As the organizational preparedness in regards to managerial requirements, FOs risk being under- or overstaff during their sunset phase. Uncertainty among staff about their job security is high due to the low level of communication, which impacts productivity.
Which strategic approach did MAVA follow?
The four approaches reflect ideal types of strategic patterns and foundations may vary between different types. Following our analysis, we found some unique aspects that led us to classify MAVA as an Impact Accelerator.
MAVA had a clearly predefined closing date that allowed for careful planning. The focus on spending the remaining income was based on a need assessment among their grantees.
To maximize its impact, the foundation selected and collaborated closely with grantees whose strategic vision was in line with the foundation’s; and that would participate in developing the final strategy based on their expertise in the field. MAVA followed a triple focus on project funding, capacity building among grantee organization, and strengthening the philanthropic environment in the field of environmental protection to ensure grantees’ longterm organizational survival.
The foundation put a lot of emphasis on regular, clear and transparent communication with all relevant parties, and grantees in particular to reduce uncertainty and explain implications of the sunset. For employees, large attention was given to their wellbeing during and after the sunset phase. Reducing uncertainty and supporting them in their future career was a priority.
To encourage future sunset foundations, careful and systematic reflection on past successes and challenges took place in order to share learnings and best practices.
Overall, the unique managerial preparedness allowed MAVA to take a holistic approach to its sunset that considered the implications of a wide range of stakeholders – foundation external and internal – and made sure that they all were ensured continuity after the sunset.
We believe that this strategic approach significantly contributed to the sound sunset of the MAVA Foundation. The sharing of these learnings will allow future sunset foundations to close successfully and ensure that their grantees are able to carry on the organization’s legacy.
Sunset foundations are intended to create focused impact during a set time frame. With a sound exit strategy, they have the potential to give new impulses for the foundation sector. Yet, we still need to better understand how these organizations function. The research project with the MAVA Foundation was a valuable opportunity to take a first step in this direction.