Vogel: Foundation Innovation

Nov 15, 2018

The billion dollar Edna McConnell Clark Foundation has announced that it will donate all its money and go out of business in 2026.

It takes courage for foundation trustees to risk all their capital through a series of very large grants. It’s much easier for foundations to grant small amounts totaling 5% of their capital, which is the minimum giving requirement for foundations.

Most foundations stick close to the minimum, and as long as revenues from the foundation’s investments exceed 5% the foundation can last forever. In contrast, limited life foundations put enormous pressure on themselves to make consequential grants during the 10 to 25 years of their existence.

As a limited life foundation, the Aaron Diamond Foundation poured $200 million into AIDS research, much of it going to David Ho at Rockefeller University. The Diamond funding enabled Dr. Ho and his colleagues to intently pursue their research and not worry about money, leading to medical breakthroughs that reduced the death rate from AIDS in the United States by 80%.

The Edna McConnell Clark Foundation or EMC now has less than 10 years to spend down the balance of its corpus. The EMC chose to focus on infant and youth development as a key to ameliorating poverty in the United States. The EMC invests in programs run by nonprofit organizations that have proven track records of delivering positive outcomes.

For example, before receiving major funding from EMC, the Nurse Family Partnership program, where specially trained nurses visit low income expectant mothers, proved its effectiveness through three randomized controlled trials. Then EMC and its co-investors invested $96 million in the Nurse Family Partnership program which enabled it to expand to 42 states including Vermont. By spending all its money over 10 years, the Edna McConnel Clark Foundation believes it can have a big impact.

It takes courage and confidence for a foundation to bet all its money on a few nonprofit organizations, but if they succeed it can make a meaningful difference in alleviating social problems or curing diseases.