Plan for Transitions Before It’s Too Late

World-class athletes do not casually approach a championship match, but rather spend years in training. Likewise, nonprofit organizations and the third-party advisors with whom they partner are now taking the same disciplined, planned approach to navigating the future—including periods of transition.

Transitions can be difficult, overwhelming, and can affect everyone from staff, board, and committee members to trustees, beneficiaries, and grantees. It is important for those involved to understand that being proactive and prepared is integral to simplifying and streamlining transitions. Whenever possible, transitions must be choreographed to avoid undue risks to the organization’s mission and long-term goals.

Taking the time to establish a transition plan allows you to consider a variety of scenarios ahead of expected or unexpected changes, thus limiting vulnerability. Many organizations develop leadership succession plans, but often overlook how other scenarios—such as a considerable increase or decrease in assets or change in the investment policy—may also affect their philanthropy. Recently, charitable organizations have begun to partner with experienced outside advisors to plan in advance of transition periods and take advantage of their research, resources, and breadth of knowledge.

Change impacts all aspects of an organization

A period of transition influences all areas of an organization. Along with leadership succession plans, protocols should be developed outlining how investment policies and procedures, tax and legal responsibilities, and grantmaking and reporting requirements might change during a transition. These plans should also be regularly reviewed and revised as necessary.

As an example, a significant increase in assets may affect a foundation’s investment objectives and warrant an adjustment to the Investment Policy Statement. The portfolio may no longer meet the investment needs or total return requirements of the foundation. Similarly, increased assets may offer the foundation access to previously unavailable asset classes, such as hedge fund partnerships and private equity, introducing investment opportunities that staff and volunteers may not be qualified to evaluate or manage. A substantial increase in assets may also influence the grantmaking program. What was once a simple process can become considerably more complex with a heightened number of grant requests or larger grant awards, as well as expanded research, due diligence, funding, and follow-up requirements. Furthermore, a foundation may lack the specific expertise or resources concerning the legal, regulatory, accounting, and tax ramifications that a significant increase in assets may generate.

Taking a proactive approach

During times of organizational stability and favorable investment markets, it is easy to become content and simply “let the good times roll.” Over the past five years, for example, many investors have enjoyed substantial investment returns. Now might seem like an odd time to initiate transition planning or consider changing the investment strategy. During these periods, however, outside advisors are seizing the opportunity to raise these topics with the charitable entities they serve. Third-party advisors are poised to recognize signs of a potential transition, present options that address transition periods, and help clients create customized transition plans to meet their unique needs.

The best advisors have expertise in addressing the intricacies of transition-related investment and advisory matters. While many advisors can manage a basic investment portfolio, fewer are equipped to manage and administer sophisticated investment strategies, provide audit and staff support, or advise on strategic grantmaking, governance issues, and leadership transitions. Experienced advisors deliver more than just investment results. As a neutral third party, an advisor can help to maneuver complicated family dynamics or board and regulatory issues. Moreover, the ability of a third-party advisor to provide continuity of information and advice over time is invaluable and allows board members and staff to concentrate with confidence on their philanthropic mission.

The right partner truly understands nonprofit organizations, is accountable and aware of the potential organizational challenges, and is able to make the transition process manageable for everyone involved.

Nina Cohen is Managing Director, Director of Endowment and Foundation Advisory, at Glenmede, an Exponent Philanthropy Platinum-Level Sustaining Partner. Independent and privately held, Glenmede was founded in 1956 to serve in perpetuity as the investment manager and trustee of the Pew family’s charitable interests—The Pew Charitable Trusts. Today Glenmede provides highly customized investment services to endowments, foundations, institutional entities, and high-net-worth individuals and families. Glenmede also provides customized administration, grants management, and advisory services to foundations and other nonprofit organizations. Follow Glenmede on Twitter @Glenmede.