When the Family Foundation Evolves

Audio Description

What happens when the family foundation makes it to the third generation? Change is inevitable—but can be managed effectively.


This transcript has been generated by an A.I. tool. Please excuse any typos.

[00:00:00] Clare Golla: With so much transition happening across our society and the economy, across generations of families and how people are giving charitably, one of the top questions our philanthropic clients often ask is, what are other foundations and donors doing?

That's why it was a no-brainer to ask today's guests to join us.

[00:00:17] Derek Jernstedt’s Family Foundation is now on its third generation, and they've branched out from their original mission and structure in multiple ways over time, he'll take us through the whys and the hows and the impacts of these decisions today.

[00:00:41] Hi everyone. Welcome to Inspired Investing. I'm your host, Clare Golla, Head of Philanthropic Services at Bernstein. This podcast is where we connect and share insights with listeners like you who are engaged in the nonprofit, philanthropy, and broader social sector. Derek, thank you so much for joining us today.

[00:00:59] Thank you for inviting

[00:01:00] Derek Jernstedt: me.

[00:01:00] Clare Golla: It's really a pleasure to have you here. Uh, you've had so much experience and you've worn so many hats across philanthropy. Let me just see if I can get this straight. You're the executive director of both the Quest Foundation and the Head Co Foundation.

Plus you are a donor advisor for a donor advised fund, and you are very involved at the University of Oregon Foundation and the College of Education.

[00:01:27] Derek Jernstedt: correct. Might, might seem confusing, but there is a, a thread primarily through philanthropy. It would get really confusing if I threw in my sports marketing career.

[00:01:37] Clare Golla: That would absolutely. We're, we're gonna save that for another podcast, so that's another one. Okay. Yeah. What I would love to do is, I'd love to start at the beginning with your family's philanthropy.

[00:01:48] So if we're. Going back in time, right? There was the head co foundation set up by your grandparents in 1972. What was the sort of original mission and donor intent there?

[00:01:59] Derek Jernstedt: They wanted to focus on taking a percent of their revenue from their private businesses and put it back into the community and really, um, I think philanthropy in the early seventies, they were trying to figure out how are we gonna do it?

[00:02:13] And so one of the simple principles is it is for. Capital expenditures only, so we. Loosely translate that as something you could take a picture of.

That way they knew that if they were giving money to a shelter for beds, furniture tables, they could go see it or they could get a, um, a picture, a report back, and they knew that their money was going where they said it was gonna go.

[00:02:41] They also added the wrinkle of reimbursement, so, the group would actually go buy the furniture, the table's, um, beds. Chairs, and then request payment. But they had to show proof of purchase.

[00:02:56] Clare Golla: Yeah. Yeah. I was gonna say back in 1972, I guess that was one way you get an invoice or something like that and you, you know, that it actually, that the transaction happened.

[00:03:04] That's so interesting. Your mom, I know, then started to step into the philanthropy. Right? And then she wanted to broaden the scope. Right. Uh, and, and share, share a little bit about how that came about.

[00:03:14] Derek Jernstedt: Yeah, so she felt that it would be great to get our family involved. So that board was, um, and is my wife, my sister, my stepfather, and it's a separate entity completely.

[00:03:28] And 17 years ago she said, I wanna set up a new foundation. This is the organization. But I wanna focus on youth. And so she had a little more specific focus as far as youth, but then as a family, we collectively worked on what's the name of the foundation going to be? How are we gonna determine where we give the funds to?

[00:03:49] Similar to what would've been done in the early seventies with her parents as they were creating the head co foundation.

[00:03:56] Clare Golla: And so you maintained the Head Co. To this day, the head co foundation still exists. Still providing the hardware or the, you know, the sort of the hard assets, so to speak. Right? Yeah.

[00:04:08] And then the Quest Foundation was created, was it created with a new pool of assets alongside Head Co? It was,

[00:04:16] Derek Jernstedt: it was a separate pool of her personal assets. Okay, got it. So her focus was getting it going and starting something new and different and, Like we were saying, she really wanted to focus on youth, and specifically youth that didn't get a fair shake for one reason or another.

[00:04:33] And so then one of our first challenges, well, how do you define youth? And we said, well, kind of let's draw a line in the sand and say 18 and under. But after that, the Quest Foundation focuses on everything from A to Z, that includes, um, the arts and includes sports and a lot in education, but even in education.

[00:04:55] There's a wide spectrum of teacher training, principal training, special education Chromebooks for schools. And I think what's amazing is by having such a broad scope, it's kept us all really engaged.

[00:05:08] Clare Golla: Absolutely. So it's really about the whole child and then all of the resources touching them and helping them, um, succeed.

[00:05:16] That's excellent.

[00:05:17] Derek Jernstedt: I think that's one thing to keep in mind is sometimes you can be really specific and that's your passion.

The other option is to be broad and help a larger population and still do good. I also think that may lead to down the line keeping people interested and engaged, cuz I've seen some organizations where it is so specific and by the third or fourth generation.

[00:05:41] Those youth may not have as much interest as what great-grandma and grandpa had in, and it starts to either dissolve or they

[00:05:50] Clare Golla: sunset it. And for each individual, uh, you know, and the family to dig into areas that are interesting to them too. That's, that's exactly, that's really great. That's great advice.

[00:05:58] Thank you. Yeah. Can I ask Derek, when did your family first decide to have a professional executive director? Was your mom acting as the executive director? No,

[00:06:09] Derek Jernstedt: ironically, and I, and I actually don't think this is that uncommon, um, with the Head Co foundation, it was actually my grandfather's administrative assistant.

[00:06:19] Okay. That helped with all of the collating of the proposal sending out, I mean, it was basically a second job. And then as the Quest Foundation started, In really the first couple years we were maybe doing just a few grants because as I, as I hinted to, I had a completely different career in sports marketing.

[00:06:42] There was a lot of other things going on. Sure. And. She proposed, um, would I consider a career change?

And I'd been on the board of the head co foundation even while my grandparents were alive. So that allowed me to have the opportunity to see what a traditional board and how those meetings were held and where we gave funds or didn't give funds and why.

[00:07:03] And as Quest got going, she said, you know, would I mind taking over and running them? And so when I joined about 14 years ago, That's when it kind of got, I would say, a little more serious.

And we have gone now in 17 years of Quest from two or three a year to almost 190 grants in a calendar year. I also manage the head co foundation as well.

[00:07:31] And a donor advised

[00:07:32] Clare Golla: fund? Yes. Okay. So the donor advised fund, I think this. This little wrinkle or the, you know, this chapter in your family's philanthropic history is gonna be really interesting for so many of our clients. So you had these two grant making, uh, foundations, then you decide to set up a donor advised fund or a daf.

[00:07:51] So tell us a little bit about the thought process here and really what prompted your family to add a donor advised fund to the mix.

[00:07:59] Derek Jernstedt: Sure. When I was joining, uh, the family foundations and starting to run them, we had a small corpus that really was the seed money to start quests. There was one of the family businesses was sold.

[00:08:15] And so there was a huge infusion of capital into the Quest Foundation, and I remember talking with my mom going almost about to have a panic attack going, how are we gonna give 5% of this new amount?

When we were just doing a few grants here and there, and meeting that requirement. But it was a much smaller corpus, and we had the advice of setting up a donor advised fund.

[00:08:45] That allowed it to essentially be a release valve. So if I make up a number, if our 5% target was 3 million, And we were working hard to give away 2 million.

We didn't wanna just go back to all of our grantees and start giving more money just because we had to try and reach the 3 million, we would do kind of a reconciliation into November, beginning of December, and that 1 million delta difference we then would give to the donor advised fund that counted as giving to a.

[00:09:18] Nonprofit, and we only need to do that for about three years or so until the grant making what the Quest Foundation caught up. And then we didn't need to do that anymore. But at the same time, the donor advised fund is now a very robust.

Separate foundation managed by another entity that I also help manage day to day.

[00:09:43] But we kind of think of that as kind of our sandbox. We have some fun, we do a lot of college scholarships in that space and it provided a really wonderful tool to have another entity help us manage how to give those funds away.

[00:09:58] Clare Golla: Yeah, no, absolutely. And this is so, I have so many conversations with. Folks who have a foundation, which has just had, you know, been initially funded, to your point, maybe some seed funding it has or it will become much larger multiples of itself through an estate settlement.

[00:10:16] Right. Process through a sale of a business, as you just described, right. Where the family's going from.

You know, one grant requirement a year to literally five times that amount. And in many cases they've been giving, you know, smaller amounts to more grassroots types of organizations. And there's a lot to consider there right around, um, how do you scale.

[00:10:38] And so for those listeners out there who aren't as familiar, please reach out to your Bernstein advisor to, you know, describe a donor advised fund to you, but essentially, It is a 5 0 1 public charity vehicle where a donor can or family or foundation can actually give funds.

It is a full charitable gift already on the front end, but you effectively become a donor advisor and work in partnership with that donor advised fund sponsor.

[00:11:07] To then distribute the funds over time charitably. And so there's a lot to it, but it doesn't have that 5% required annual distribution rule. And that's what made it, uh, Derek right, that, that great sort of release valve for you as a family during that transition. It's a fantastic tool, is an option for, for folks who are trying to scale up.

[00:11:29] Derek Jernstedt: Yes, and anytime I'm asked my advice, or sometimes I'm introduced to someone who maybe just sold a company or real estate or I usually don't even know what, and it's none of my business, I always say, talk to your investment advisor, talk to your tax professional.

But I would also say one of the major advantages of a donor-advised fund is while the funds are sitting there and they're being invested, You can take your time and you can start thinking through and you have a lot more flexibility.

[00:12:00] I've often said to folks, that's a fun place. If you wanted to have your kids involved or your grandkids eventually pick a topic, let them pick a topic, pick a dollar amount, $500, a thousand dollars, let them all come back with ideas, and it creates this opportunity for a family to have a conversation about philanthropy.

[00:12:20] The donor advised fund can be fun and they help with the due diligence on organizations. They help with sending the money, they help with the reporting and all the follow up. So there's a lot of advantages and again, it's just a nice to know that these are some of the possibilities

[00:12:35] Clare Golla: out there. Absolutely.

[00:12:37] I love that because so, so many folks could really make great use of both, right? It's not an either or. It could be an and. Correct. Another aspect of scaling that we are working on with a number of clients is, as I mentioned, you know, a lot of folks are giving lots and lots of smaller grants out there.

[00:12:54] Many folks ask us about scholarship programs. They really wanna start giving out scholarships.

You have done a phenomenal job of partnering with other intermediaries. To help with some of the administrative lift and some of the day-to-day important work that goes into scholarship funds in particular.

[00:13:12] Could you share a little bit about how you developed those partnerships and what really makes 'em

[00:13:17] Derek Jernstedt: work? Yeah, I think the interesting thing about scholarships is there is such a need not only from the students side prospecting scholarships, but from the university side giving scholarships.

And so we really work personally and intimately with all these different universities where we may have partnerships, um, sometimes that's an alum.

[00:13:41] We're alums of those universities, so there's a personal connection. I then also lean on the donor advised fund team to help with the administration of the grants. But I think what's neat is we personally don't review the applications or the needs statements from these students. That is on the university side.

[00:14:05] We've created some of the criteria. Which helps it be, um, like at the University of Oregon, for example, we have students on scholarship that are in the College of Education, but it's up to individuals to talk to those universities. Touch on your passion points. Could be the business school, could be the arts, could be athletics, it could be student athletes.

[00:14:27] We actually fund female scholarships at the University of Oregon at Kansas that are specific to female student athletes. And they have their own little wrinkles, but then the donor advised fund helps manage all those grant agreements. We also get a tracker of all the scholarships that are out there, when is the payment due?

[00:14:49] And then we approve. Yes. You know, those are good to release. So it seems overwhelming, but it doesn't have to be. And it's just a matter of really connecting and making those relationships, um, with each specific university. That's

[00:15:04] Clare Golla: great. Yeah, and I think that that piece of, that you are not. Reading each.

[00:15:09] Right. You're you're not making that determin. I couldn't do it. I couldn't do it.

[00:15:12] Derek Jernstedt: It's great. Right. I can tell you it's heart wrenching. I, I would also just say one thing that we do require is that those students write us a letter. So we might have some of these requirements up front for who can be a candidate to receive scholarship funds.

[00:15:29] The university determines that. But when we give those letters and have a chance to read, and they are so unbelievably honest and they don't know us, which I. Is remarkable.

You just are ready to do more. I mean, you've changed my life. If I hadn't been able to come here and do this, I'd still be at home or in my community and it just gives you goosebumps and tears and you just say, okay, we're ready to do some more.

[00:15:55] So

[00:15:56] Clare Golla: that's great. No, that's so helpful to hear those stories, right? In an, in a world where data collection and, you know, all of that is so, there's such a focus there. Just having these. Stories and having these conversations is so important. I also

[00:16:10] Derek Jernstedt: think it's really important to keep in mind that there can be qualitative as well as quantitative results that are equally

[00:16:19] Clare Golla: powerful.

[00:16:20] Yeah. Well, that's very helpful. And by the way, I was gonna say, I knew I liked you a lot, but now that I hear about all your support of women's athletics, I, I love you even more. So, um, please keep funding that it's, So needed. That's great. Um, yes. So, okay. I do wanna get back to the, the reporting piece because I think that's important.

[00:16:38] Actually, I wanna talk about two things, the grant making and the reporting, so mm-hmm. We're in this environment. I mean, you go across the country, talk about, you know, in the philanthropy industry there's a big emphasis on trust-based philanthropy and, you know, providing.

Larger and unrestricted and multi-year grants and, and the onus being on the foundation to really do the due diligence, right.

[00:16:59] And not overburdening organizations with a bunch of data collection, um, and extra reporting that may take them away. From their core work, right? Mm-hmm.

And so I know there's this tension between, okay, we wanna get certain information so that we can be better as grant makers and we can, you know, continue to work towards these solutions and also not overburdening folks.

[00:17:21] So I'm curious about your grant making process. First of all, as you've evolved, especially with Quest, for instance, did you start out just. Sort of, uh, like privately, like inviting organizations to apply or did you put a public, you know, notice out there, this is something that a lot of foundations are grappling with.

[00:17:42] How did that evolve with Quest? We

[00:17:45] Derek Jernstedt: actually followed the footsteps of the head co foundation, which was really. Has been private. We don't have a website. We have a granting website, but we don't have a public website where, got it. Just anybody can find out about us.

Um, I know others do want that and that's wonderful and there is more PR behind.

[00:18:08] Some of those, um, reasons or entities, we have kept it private. We've really leaned on our board members mm-hmm. To do the prospecting or family. Okay. And so those have all been wonderful kind of referrals, if you will, two organizations that are doing great work. We can't be everywhere all the time. We really had to also make a shift.

[00:18:31] When I started, um, with the foundations, we, we had been doing everything just through paper proposals, and so we had, we, we still do have files and files and files of paper. We switched over to an online granting application process through a company called Found.

Which works with donor-advised funds, private family foundations, public foundations, scholarships, a little bit of everything.

[00:18:57] And that really helped us streamline the application process coming in. We do have a requirement asking about the results. How many youth do you plan to impact? How are you gonna tell it's gonna make a difference? But I think one area we've learned to be flexible is if an organization doesn't have the bandwidth, To do all that reporting.

[00:19:20] We're not gonna make 'em or force 'em. It doesn't mean it's not a great group impacting used lives.

Mm-hmm. I do think there are some great solutions that can help people look at the metric side and how do you come up with putting a stake in the ground and saying, this is what we plan to do. On the reporting side, if someone says, we hope to have 500 youth in our program.

[00:19:42] We only had 300. We may have a dialogue then on why, what happened or what were some of the things you learned.

There's also the, the double-edged sword of really trying to compare apples to apples where a boys and girls club and afterschool programming or even summer programming may reach hundreds of youth, whereas a literacy program may reach 50 youth.

[00:20:07] The impact is important, but they're completely different things. So as a board, we have to say, okay, well this dollar amount may be more, but it's also way more time intensive. So there's, there's a lot of little nuances. I think it's important to address or at least talk about. There is a great group that we work with and we actually help fund called UP metrics that.

[00:20:31] Helps organizations Yep. Come up with what is it we're trying to do, what are the numbers? And ultimately how do we tell that story? Mm-hmm. And really that's kind of a loop to help them do a better job of fundraising and managing their data operations.

But it, it is helping them because. The reality is a lot of people who started a nonprofit, they started it to go do good or to solve a problem that they saw, right?

[00:20:59] They didn't realize they were gonna have to build a board to do the accounting side, do the metric measurement side. I think one of my favorite things to do is the networking side and telling somebody, Hey, you're trying to come up with this. You should meet this person.

[00:21:18] Clare Golla: You've touched on so many things here.

[00:21:19] First of all, as you're describing how you can make connections to other resources and other folks who have gone through similar situations, that's so in line with the whole concept of sort of giving beyond the check, which is a part of this trust-based philanthropy.

Right. What other resources can funders and donors like bring to the table to support organizations in creating the change and creating the impact, right, that they've really set out to do?

[00:21:46] So that's. So important. The other is just as you have researched the right partners for let's say scholarship programs or intermediaries to help move the ball forward, you know, with some of all the day-to-day, uh, work that needs to be done on some of these more labor intensive programs.

You've also touched on a few partners that are critical for grant makers and for families who are grappling with this stuff.

[00:22:10] So you mentioned founding, right? There are software providers out there, whether you're working with found or another. Type of software provider that can help you get your ducks in a row, like collect all of your own data internally.

Um, that's so important. Up metrics, right? Partnering with organizations so that they can effectively tell their story.

[00:22:29] Um, I love that, that you're, that you're providing all these resources and sort of food for thought for other clients of ours. So thank you. I also would

[00:22:36] Derek Jernstedt: say other family foundations. I've talked to a lot of others that I've either met. At, um, gatherings or investment manager briefings, get to know them, learn about how do they do things, how do you do your board meetings?

[00:22:51] How often do you have them? How many proposals do you go through? Yeah, and I think obviously that's the reality for most families is how do you do this? But at the same time, it can be overwhelming if you start thinking about all the nuances of a grant process.

We've learned a ton, not only on 50 years of the head co foundation's, ups and downs, but also how do others do it and how do we tweak it and

[00:23:15] Clare Golla: make it our own.

[00:23:16] Yeah. Oh my gosh, Derek, you're gonna be getting a lot of outreach after this. So, um, just be careful what you wish for.

This has been absolutely fantastic and unfortunately we're, we're close to time here, but we always love to give our listeners. Some action steps. You've actually given quite a few here, but whether they're next generation philanthropists or they're business owners or artists with a, you know, some sort of a windfall, what are three key takeaways, for instance, that you'd like, uh, others to consider?

[00:23:47] Well, I,

[00:23:48] Derek Jernstedt: I usually would say the first thing is in grant making philanthropy, giving your money away. Think about the areas that you're passionate about. But I also would say keep that scope broad, but also be specific in the giving. So if it is the arts, there's amazing groups out there doing a ton of work in the arts.

[00:24:07] But also as you dig in and give, be specific about what you wanted to go to and not just say, Hey, here's some money. You guys go figure it out. The second thing I would say is really get out there and see your money at work.

See the organizations that you're helping support site visits are unbelievable and, and again, some people aren't comfortable with that.

[00:24:30] So maybe there's another way of getting reporting or feedback from an organization, like a letter from a student who maybe you're supporting with scholarship funds. And then the last thing I would say is, Keep your mind open on the reporting and the feedback and, and be flexible if there's specific things you'd like to hear about.

[00:24:51] Number of youth impacted. How's this piece of equipment making a difference? By all means ask that, but I also think there's power in the qualitative reporting and not just the quantitative of numbers or statistics.

It's having a letter from a student saying, This changed my life or visiting a school and seeing them working on their mindfulness, and the student looks at you a second grader and says, this is my favorite part of the day.

[00:25:20] You know, they're dealing with a lot. And to have a kid tell you that that is way better than saying we had hundreds of youth come through the program. This is how we administer the program. That's all great, but, but really hearing it on the qualitative side is really, Really powerful.

[00:25:37] Clare Golla: That's amazing. I mean, I, I'm scribbling my notes down here.

[00:25:40] I've got, you know, following your passion with focus and flexibility, right? Getting out there, seeing the impact, and then asking for results, but keeping an open mind on how those are delivered to you, really meeting the organizations where they're at. Oh my gosh, Derek, thank you so much for joining me today.

[00:25:57] It's really been a pleasure. You're welcome.

[00:26:00] Derek Jernstedt: Thank you for having me.

[00:26:01] Clare Golla: Absolutely. We may have you back. You're, you're a great interview. Okay. So if you'd like to learn more, please see the link in this episode's description. And if you enjoyed this episode and haven't subscribed to our podcast yet, please go to Spotify or wherever you go to listen to podcasts to subscribe and rate us.

[00:26:19] Also, please email us with your thoughts and questions and feedback to insights bernstein.com. And be sure to find us on Twitter at Bernstein pwm.

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