Giving Compass' Take:

• Dimple Abichandani shares the seven factors that the General Service Foundation balances in their foundation spending decisions. 

• How is your foundation currently making spending decisions? Should these factors be considered in your spending decisions going forward? 

• Read about investing to achieve your foundation mission. 

In reimagining our approach to foundation spending policies, I drew inspiration from the “balancing tests” that courts often employ when ruling on complex issues. In legal proceedings, a balancing test helps the court arrive at a decision by considering and weighing multiple factors: Instead of a “bright line” rule which leaves no room for interpretation, cases where multiple interests must be taken into consideration require a more flexible approach.

Applying such an approach to foundation spending allows us to consider critical non-monetary factors like the foundation’s mission, current needs, and opportunities in the fields we fund. Starting with a traditional spending policy—considering investment returns as expressed in the three-year rolling average, operating expenses, and perpetuity—we add in four additional factors: growth goals, meeting the moment, organizational values/mission, and grants and programs. Rather than plugging factors into a formula or simply checking off boxes, we consider and weigh each factor.

Our spending policy balances the following seven factors:

1. Investment returns: We assess our investment returns by looking at the three-year rolling average value of our endowment. What has been the return on investments in the last period? We look at the returns over three and five years. What is our investment philosophy? This is also where we discuss opportunities to increase our impact investments.

2. Growth goals: While foundations sometimes approach growth as a habit, it is important for a mission-oriented organization to have a clearly articulated growth goal. Some foundations seek long-term growth for a bigger impact or to get to a size that can support a larger staff or expand a particular program; others—who are perhaps already quite large—may decide that sustained spending power is the best way to meet their mission, and choose a 0 percent growth goal. What is our institution’s growth goal? What can we do once we’ve met it?

3. Perpetuity: Rather than posing perpetuity as a yes or no question, we discuss what perpetuity means to the foundation. For family foundations, it can be helpful to speak in terms of generations: Do we mean the 6th generation of the family will sit on the board or do we mean the 16th? Does our understanding of perpetuity require us to keep the spending power of the foundation forever? How important are our perpetuity goals relative to the other factors being considered, and why are they important? How do we see the future of the foundation?

4. Meeting the moment: What is this moment for which our spending policy is designed? Is it a moment of tremendous need and opportunity? What is at stake? This factor requires the organization to consider realities external to the foundation.

5. Organizational values/mission: What is the opportunity in this moment to live into our values and fulfill our mission? What is at stake for our mission in this moment? While “meeting the moment” requires us to look externally and assess what is happening in the fields we fund, this factor is internal, and requires us to lean into our mission and our organizational values.

6. Grants and programs: In the coming year, what grant and program opportunities exist? Is there a “big bet” the foundation wants to take?

7. Administrative costs: Are administrative costs in line with organizational values? Are we compensating our staff generously and appropriately? Do we have the staff capacity to do the work in a sustainable way? If our grants budget is growing, are we providing increased administrative capacity to support the expansion?

Read the full article about factors to balance by Dimple Abichandani at Stanford Social Innovation Review.