AVINANonprofit Enterprise and Self-sustainability Team

Sustainability through Earned Income Strategies
Building an Endowment: A Case Study of the Corona Foundation
August 2001

This case study was prepared by the Nonprofit Enterprise and Self-sustainability Team for The Synergos Institute with support from AVINA.
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Organizational Information
Financial Information
Self-financing Information and Start-up
Self-Financing Management
Policy and Regulatory Environment
Outcomes of Self-Financing
Lessons Learned


Foundations around the world are taking increasing advantage of earned income opportunities to raise money for their programs and endowments. However, directors and staff most often do not have the specific experience required to evaluate and assess business opportunities. Even where they do have this experience, they still have few models for non-profit business in their own countries.

To build the capacity of foundation leaders in creating earned income programs in their own institutions, Synergos has developed case studies on earned income programs that grantmaking foundations have implemented successfully.


Organizational Information

Corona Foundation is a private corporate non-profit foundation located in Bogota, Colombia, that supports efforts to improve management of social processes in the country. It was established in 1963 by the Echavarria Olózaga family, a prominent Colombian family that owns the Corona Organization. The Corona Organization is a conglomerate of Colombian companies dedicated mostly to manufacturing, selling, and marketing industrial construction and home products, in Colombia and abroad. As a whole, Corona has about 6,500 employees, eight manufacturing plants, and two commercial chains.

When it was first established, the Corona Foundation focused mainly on providing assistance to employees of the Corona Organization companies, the employees' families, and their surrounding communities. The services provided by the Foundation included educational scholarships, housing subsidies and health care.

In 1989, in an effort to anticipate and adapt to economic, legal and institutional changes taking place in Colombia as a result of globalization, the Foundation's mission and structure evolved. The Foundation decided to widen its involvement in the country as a whole, pulling away from the areas of influence of the companies. It also resolved to give up direct implementation of programs and services and instead promote and finance those implemented by third parties, strengthening their technical capacity and endowments; and to focus its mission on the management of social processes.

Today, the Foundation's mission isto contribute to the country's social development by improving management of social processes, through programs dedicated to facilitating access of the poorest to benefits derived from social development.

It is one of the few corporate foundations in Colombia and throughout Latin America that supports social development efforts on a national basis, and tries expressly not to become solely involved in the communities where the conglomerate's manufacturing plants are located.

The Foundation supports programs and projects in four key areas:

Photo courtesy of the Corona Foundation

The Foundation supports projects implemented by private or public institutions -NGOs, universities, research centers, consulting groups as well as projects that contribute to improving public policies that affect the quality of life of the poorest, most vulnerable sectors in Colombia. At the same time, the Foundation supports efforts that contribute to strengthening the country's institutional capacity in social areas. In both cases, the Foundation works through alliances with other institutions, in Colombia and abroad. One way of doing this is to co-finance a project that focuses on a specific problem together with other institutions. Another way of doing this is to support an organization and its work for several years. Currently, about 16% of the Foundation's grants support the first type and about 28% support the second.

The Foundation carries out its mission with a staff of 18 full-time employees. Leading the Foundation is an Executive Director who oversees the four program areas, with the help of the technical and evaluation coordinators, a communications area, and an administrative and finance area. It undergoes two audits: an internal audit carried out by one of the companies belonging to the Corona Organization, and an external audit conducted by a well-known international firm. The Foundation's board of directors has 8 members, five of whom come from the Echavarria Olózaga family, two businesspersons from the Corona Organization and the executive director, who is also a member of the management council.


Financial Information

The Foundation's budget in 1998 was 4,557,250,000 pesos (approximately US$3.25 million ). Nine percent of this total is for program co-financing from international foundations and government agencies, and is managed directly through the Foundation. Twenty-four percent came from donations provided by the companies that are members of the Corona Organization. The remaining 67% came from self-financing in the form of dividends from the Foundation's endowment, which in 1998 totaled 38,890,128,000 pesos (approximately US$25,218,777).

By the end of 1999, the sources of the Foundation's financing mix were projected to shift, with an increasing amount of resources coming from external sources, allowing for a greater reinvestment of endowment yields. Thus, by the end of 1999, it was expected that 19% of the Foundation's income would come from international donations, 28% from the Corona Companies, and only 53% from the Foundation's endowment yields. The reason for this gradual shift was thought to be twofold: 1) Colombia's economic and financial crisis had reduced the yields from the endowment; 2) the Foundation had made it a major organizational policy to reinvest the dividends from its endowment so that the endowment can continue to grow and eventually completely finance the Foundation's activities. This policy was been endorsed by the Corona Organization and the Echavarría family.

Figure 1: Corona Foundation Sources of Income 1997-1999
Source 1999 (projected)1998
External co-financing resources 19% 9%
Corporate donations (Corona Organization) 28%24%
Self-financing (endowment income)53%67%

Source: NESsT Interview, May 1999; adapted November 1999.

In 1998, 34% of the Foundation's expenses were for administrative and operational costs and 66% for programs and grants. Administrative and operational costs include overhead expenses such as personnel salaries and benefits (including those of the heads of operational areas devoted entirely to social programs and projects), rent, utilities, and supplies.

By the end of 1999, these amounts were projected to be similar at 30% for administration / operations and 70% for programs/grants. The Foundation was set on reducing administrative costs to approximately 20% of costs over the next few years, provided that the endowment continued to grow and the Foundation was able to channel a greater amount of resources for social investment purposes.


Self-Financing Information and Start-up

The Corona Foundation established its endowment in 1986 with initial donations from the Echavarria Olózaga family. It was in 1989, however, when the Foundation's mission evolved and its strategy and institutional outreach widened, that building the endowment became a central concern. At that point, the Corona Organization had already begun to contribute some of its assets to the Foundation. Assets transferred from the Corona Organization to the Foundation included soft assets such as shares, bonds and other forms of investment instruments, as well as hard assets such as property and equipment.

In 1989, with the help and support of the board of directors, the then recently-hired executive director and the finance director began to manage these assets. Such management included constant analysis and decision-making on whether to rent or sell investments to obtain higher profits at lower risk for the Foundation.

In addition to asset donations, the companies would provide cash donations to the Foundation on an annual basis. It was established that these annual donations would be used by the Foundation for its own grant-making activities and that assets, to the extent possible, would be invested to build the Foundation's endowment. This policy has been maintained by the Foundation over the past ten years. Seldom has the Foundation had to sell any of its assets to pay operational costs. On the contrary, the Foundation has managed to increase the asset value allowing for reinvestment of revenues into the endowment. As a result, the endowment has consistently grown over the last decade from US$5.67 million in 1990 to US$25.38 million ten years later.

The cash donations provided by the Corona companies have played an important part in the Foundation's ability to provide grants for social programs and projects while at the same time reinvesting in its endowment every year. In 1998, the donations provided by the companies comprised approximately 50% of the Foundation's total program expenditures.

However, neither the cash nor regular asset donations are required of the companies. This is due to the fact that it is not always financially or economically feasible for the companies to do so, as they themselves are sometimes negatively affected by the country's difficult economic cycles. In some cases, due to fiscal regulations or circumstances (taxes), it may not be advantageous for them to donate.

It is for this reason that the Foundation's 1996-2000 strategic plan established the goal of lessening its dependence on company donations by gradually becoming fully financed by its endowment.

Figure 2: Foundation Corona Endowment Size (in millions of US dollars)
1991 12.30
1992 14.39
1993 19.63
1994 30.73
1995 28.56
1996 28.03
1997 27.10
1998 25.38

Source: Corona Foundation 1996-2000 Financial Plan

Achieving full foundation self-financing is no easy task, given that building an endowment depends on three factors that are typically beyond the Foundation's control:

Despite an intentional desire to increase its endowment, the Foundation's investment decisions and asset management must be handled with great care and caution. The Foundation's investment policy is based on two key criteria:

The Foundation has never resorted to speculative investing. Its financial targets are realistic and are therefore usually met. Between 1989 and 1998, a large portion of the portfolio was invested in fixed income instruments, such as bonds or real estate. A lower percentage of the portfolio was invested in variable income instruments such as stocks.

Given Colombia's current economic and financial difficulties, including the recent devaluation of the Colombian Peso, the Foundation was not expected to be fully financed by its endowment by 2001. It was therefore developing a new five-year plan and strategy for attaining full self-financing that was more in line with the country's economic conditions.

Figure 3: Composition of Corona Foundation's Endowment Portfolio
Types of Investment 1993 1994 1995 1996 1997 1998
Stocks (variable) 64% 44% 41% 33% 23% 10%
Bonds (fixed) 7% 6% 9% 15% 19% 19%
Real Estate (rent income and valorization) 27% 47% 45% 47% 57% 66%
Other 2% 3% 5% 5% 1% 5%

Source: Corona Foundation 1996-2000 Financial Plan


Self-Financing Management

The Management Team

The foundation has always managed its endowment internally, relying on the expertise and skills provided by its own management council and its parent companies. In 1989, the same year the Foundation widened it's the scope of its activities, it hired its first full-time executive and financial directors. Both had previous financial experience, and were directly responsible for managing the endowment fund.

In 1994, the Council decided to create a finance committee to assist the staff to manage the foundation's financial policies and investment portfolio. The committee reports directly to the Management Council and is comprised of the fresident of Corona Organization (also member of the Foundation's Management Council), one member of the Echavarria Olózaga family, the finance director for Corona Organization, the Foundation's executive director and the head of administration and finance. In the beginning, the committee had no decision-making power. Rather, its role was simply to advise staff on decisions related to the endowment.

By 1997, as the endowment and investments grew, the finance committee suggested that the Board have an outside consultant to further advise the staff and finance committee on its investment decisions. This person would be independent of the Foundation, hold no corporate ties and would come specifically from the banking industry.

At this point also, the finance committee assumed a decision-making role. It was empowered by the Management Council to approve all transactions on the foundation's investment portfolio of up to US$1 million which were to be later reported to and ratified by the management council. Transactions in higher amounts were to be approved by the Board. The committee meets every two months to go over the financial and budgetary statements, the endowment investment portfolio's development, and other recent issues that may require analysis, recommendations or decisions. In the future, it is expected that the council will meet more often.

The Management Strategy


Photo courtesy of the Corona Foundation

In 1995, the fFoundation developed its 1996-2000 strategic plan. The strategic plan spells out the progress expected for each technical area of the Foundation and contains the corresponding financial plan to help guide its investment decisions over the subsequent five years. The plan contains specific targets for expected endowment growth in size and yields. In addition, it projects the kind of (and level of) income that the Foundation would need to obtain in order to continually increase its grant-making. The foundation has remained very loyal to the plan despite its inability to control changes (interest rates, currency devaluation, valorizations, etc.) in the marketplace, which affect its own direct investments as well as the donation decisions of its parent companies.

Although the Foundation has always managed its investments internally, the size and complexity of the endowment has grown and requires more time and effort to manage. It has become extremely difficult for the administration and finance area (with a staff of four full-time employees) to handle the full endowment internally, while simultaneously supporting grant-making and contracts for social programs and projects and handling all human resources, accounting, purchasing, information systems, legal and fiscal processes.

The Foundation has therefore begun to "outsource" the management of the actual transactions. Rather than increase personnel (which would go against its own desire for higher organizational efficiency and flexibility) the Foundation has opted to hire outside investment companies to take on defined tasks.

The Foundation contracts a single company for assistance. The independent firm, guided by the staff and the finance committee, administers the fixed income portion of the Foundation investment portfolio (i.e., the least risky component). The Foundation has signed a contract that stipulates that the company is to invest in fixed income only and not in any kind of variable income or real estate. The company is required to maximize the profitability of the investments under its stewardship but is not required to guarantee a set yield. The Foundation pays the company a fixed percentage of the yield for its services, and the percentages are based on the size of the portfolio they were asked to administer. For example, in 1998, the percentage paid was 4.5% of the yield based on a portfolio amount of US$3 million.

The Foundation still directly manages its own variable assets, which have been quite volatile during the recent economic crisis. The Foundation plans to further outsource its investments over time, always guided by its conservative, cautious investment policy.

The Corona Foundation's investment practice is guided by the same code of ethics that governs all of its operations. Although it does have an explicit policy on the types of sectors in which it will not invest, the Foundation currently abstains from investing in ethically questionable and controversial sectors (e.g., defense, alcohol, tobacco etc.).


Policy and Regulatory Environment

In Colombia, nonprofit foundations must either use the returns from their investments for their mission-related activities or they must reinvest them in their endowments. If they opt to spend them in mission-related activities, they must seek permission from the National Tax and Duties Administration (Dirección de Impuestos y Aduanas Nacional -- DIAN). If the DIAN determines that the Foundation is not acting in accordance with its nonprofit statute (that is, that it is not spending its returns to fulfill its mission-related work), then the DIAN may require the Foundation to pay a 20% tax on its annual returns.

Photo courtesy of the Corona Foundation

Corona Foundation has been in this position only once. In 1995, the Foundation paid the 20% tax on a small portion of its income due to a dispute with the DIAN on whether reserves kept for potential losses on investments could be considered a legitimate expense or not.

On the donation side, according to the prevailing tax system as it applies to organizations such as the Corona Foundation, corporations can donate up to 30% of their profits (for every 1,000 pesos in profit, for instance, a company can give 300 pesos in donations), reducing their tax burden by 30%. This tax provision provides a clear incentive for the Corona Organization to provide donations to the Foundation through its companies. However, legal and fiscal implications alone do not determine corporate donations on any given year.

Such decisions are typically determined by two factors:


Outcomes of Self-Financing

These outcomes are examined against eight indicators developed by NESsT to evaluate the impact of self-financing strategies on nonprofit organizations. a) Maintained or Strengthened Mission -- The venture helped to maintain or further the mission of the organization

There is no doubt that the Corona Foundation's self-financing strategy has helped the Foundation to further and expand its mission. The fact that in the past few years the organization has relied on endowment yields for over 60% of its spending attests to the very positive effect that the endowment has had on its ability to carry out its mission. As the endowment continues to grow, and the Foundation simultaneously decreases its overhead costs, the Foundation may continue to increase the number and/or size of organizations and projects that it can support. Coupled with the Foundation's self-financing efforts, its alliance-building approach has helped it to significantly increase its social impact.

The self-financing and endowment-consolidation strategy chosen by the Foundation is, by its very nature, a strategy that is compatible with the Foundation's mission. Ensuring that it invests in industries that are not contrary to the Foundation's own social goals is very important. And, reducing its dependence on sporadic donations of the Corona Organization and other foundations is helping to insure that the Foundation is a reliable and solid source of private social assistance in Colombia.

b) Financially Profitable -- The venture generated a financial surplus (or is projected to)
The endowment is "profitable" in that it has not caused losses for the Foundation and in fact has continued to grow steadily since its inception. Although the investment portfolio is subject to market fluctuations, the Foundation's investment policy is conservative, avoids risky transactions and substantive losses of any kind.

This type of self-financing is, however, not easy to control or guarantee. Despite Corona Foundation's very strong standing in the Colombian financial community, the Foundation cannot fully control the performance of its investments, nor the donations that it needs from its parent company to make these investments. In recent years, with a turbulent economic environment, the Foundation has seen a considerable downturn in its yields. At the same time, its policy of increasing the size of its endowment has entailed looking for more donations and external co-financing resources, and relying less on investment returns. This strategy is particularly difficult when a substantial percentage of these donations come from corporations that are themselves facing financial difficulties.

c) Diversified Funding Base -- The venture helped to diversify the sources of income of the organization
Until now, the Corona Foundation has had a relatively diversified funding base relying on donations from international and domestic sources, as well as revenues from its own equity. The Foundation's ultimate aim, however, is to decrease its dependence on donations and increase its reliance on its endowment. Within its investment portfolio the Foundation would prefer to maintain a diversified mix of investments and investment instruments: stocks, bonds, real estate, etc. This is a critical component of a very sound endowment-building strategy, which reduces risk and dependence on a single source.

In addition, the Foundation's grant-making approach has also become more diversified, easing internal pressure on the organization to be the sole funder of any one project. Its new alliance-building approach, where the foundation teams up with one or more local or international organization(s) to fund and launch projects, is effective on several levels. Not only does this approach leverage additional financial resources for social development efforts; it also benefits from the knowledge, skills, and expertise of other organizations resulting in stronger and more representative efforts.

d) Increased Organizational Effectiveness -- The venture helped the organization to function more effectively (e.g., improved financial management, improved time efficiency, more enterprising, etc.)
A primary goal of the Corona Foundation in coming years is to decrease its operational expenses and increase its grant-making and program revenues. This goal is intrinsic to its endowment-building strategy, since reducing overhead means more resources available for supporting programs and projects and reinvesting in the endowment.

In addition, the Foundation has begun to outsource the management of its investment portfolio. Rather than increase personnel, Foundation directors realize that outsourcing provides a low-cost and more effective mechanism for managing its investments. This strategy also provides the Foundation with greater flexibility since payment to the administrating entity is based on performance incentives.

Internally, the Foundation has also worked to "streamline" its work. The Head of Administration and Finance, who oversees the endowment strategy with the assistance of the finance committee (now strengthened with an outside consultant), is also directly responsible for overseeing the Foundation's financial and administrative performance. He does this with the help of three other employees. The fact that the organization still retains a relatively high proportion of (administrative) overhead costs has to do with the way that it classifies these costs (i.e. administrative costs include salaries of program personnel) and the fact that it has not yet met its financial and endowment building targets.

e) Improved Relations with Constituents -- The venture improved or did not negatively impact the organization's relations with any of its constituents (staff, volunteers, board, donors, public, community)
The Corona Foundation's endowment-building effort has not had negative impacts on its relations with its stakeholders. The staff, management council, grantees, donors, allies, colleague foundations and NGOs, all seem to be very supportive of the Foundation's approach. The Foundation's ability to increase its grant-making activity has resulted in improved relations with its constituents. Donors have strongly supported the Foundation's self-financing strategy, which is making it a more attractive partner.

The benefits derived from consolidating its endowment not only allow the organization to fund its own social programs and projects, but also to support other Colombian organizations. For example, the Foundation helped found and co-fund the creation of the Organization for Excellence in Justice (Corporación Excelencia en la Justicia), a private nonprofit, whose main objective is to improve the impact of the judicial system in Colombia. Rather than establish an isolated program as it had originally been asked to do, the Foundation felt it would be more productive to help create a new institution dedicated to these goals. Similarly, it gave support to create and strengthen institutions that specialize in hospital management, education, and technological innovation for small- and medium-scale enterprises and community-based organization management support. The Foundation is seeking strategies to facilitate institutional strengthening in Colombia, and is keen to assist newly created organizations and foundations with their own endowment-building programs. The Foundation does this by sitting in on their board and finance committee meetings and sharing with them the lessons learned.

f) Benefits Outweigh Costs -- The benefits (financial and non-financial) of the venture outweigh the costs (time, effort, money) in relation to other financing methods
The Foundation believes that the benefits of its self-financing strategy far outweigh the costs. The greatest benefit of self-financing is that it allows the Foundation to draw on resources that do not depend on the financial well-being of other donor sources. In other words, it decreases reliance on external donations that are given at the discretion of the donor. Time and resources spent formerly on fundraising and donor cultivation can instead be diverted to endowment-building and investment decisions. Although the Foundation's endowment building strategy has depended heavily on such donations (from its ties with the Corona Organization), the Foundation believes it can/should not rely solely on such resources.

The time, effort and resources spent by the Foundation on building its endowment are significant and should not be underestimated. The Foundation has had to build its capacity to understand the marketplace -- it has brought in people with financial expertise to assist with decisions related to its endowment and has decided to streamline its operations and to increase its reliance on donations in the short run in order to reinvest in its endowment. However, the benefit of a wider stream of safer and more flexible resources is well worth these efforts as it positions the Foundation to have a longer-term, more substantial impact in fulfilling its social mission.

g) Increased Flexible Funding -- The venture helped generate a greater amount of "flexible" (i.e., untied, unrestricted, unearmarked) income for the organization
Since 1989, the Foundation has sought to become as financially independent as possible through a clearly defined and deliberate policy of endowment growth and consolidation. By 1998, 67% of the Foundation's income came from revenues generated by its growing endowment. This trend enabled the Foundation to increase its giving and be more selective in the types of programs and initiatives that it supported. The Corona Foundation has always aimed to be increasingly more effective in improving Colombia's social and public policies which, in turn, means making very sound and strategic decisions on where and how it decides to place its resources.

Due to its increasing financial independence (and its desire to leverage ever-increasing resources for its work) the Foundation has in recent years also moved toward increased strategic alliance-building, working with other major local and international institutions to address social problems. The untied resources provided by its endowment allow the Foundation greater freedom in defining the nature of such alliances without the limitations or conditions oftentimes accompanying donor-provided resources.

h) Allows Longer-term Planning -- The venture allowed the organization to plan more autonomously and more long-term
The Foundation's self-financing strategy has allowed (or perhaps required) the management to be more conscious of goal-setting and long-term, deliberate planning. In 1996, the Foundation created a detailed, five-year strategic plan outlining its financial goals and strategic programs, clearly specifying the resources needed to achieve their objectives and the financial strategies required to insure such resources. The Foundation leadership has tried to remain loyal to these projections and guidelines. Although recent economic circumstances have made this difficult or impossible and the Foundation has not always achieved its targets, it has not deviated from its overall endowment- building strategy. This long-term investment and planning philosophy allows the Foundation to be consistent with its work plan, with its external-donor relations, and in building its strategic alliances so as to increase the impact of its social development efforts.

As the Foundation prepared to enter the new millennium, the Management Council and its management team were developing a new five-year strategic plan that would build on the assessment of the current one, and would consider prospective opportunities, needs, and future challenges.


Lessons Learned

Building an Endowment while Grant-making

An important lesson from the Corona Foundation case is that it is possible for a foundation to slowly build its endowment while simultaneously building its social and grant-making activity. Since it began to build its endowment, the Foundation adopted a policy of using cash donations from the Corona Organization to develop its social programs and projects and asset donations for reinvesting in its endowment. This was a deliberate strategy, which in time allowed the organization to continue to grow sustainably while meeting its mission. However, it was also partly due to the Foundation's reliance on and relationship with the Corona Organization and its companies. It's not clear if, without this steady stream of cash support, the Foundation could have upheld the ongoing reinvestment approach.

A Conservative Investment Approach

The Foundation maintains a conservative investment policy. Most of its endowment assets are invested in fixed instruments and it does not undertake speculative investing of any kind. Although this approach has meant a slower rate of growth for the endowment, it has also resulted in a steady rate of growth. In addition, the Foundation has managed its own investments and, until recently, used its own staff and board to oversee them. It has adeptly balanced the need to be ethical and conservative in investment decisions/strategies with the need to generate yields sufficient to maintain or expand its social development work.

Strong Internal Financial Expertise

The Foundation has mostly relied on the financial expertise of its management council, its staff and Corona Organization members to guide the growth and policies of its endowment. This has ensured that the best interest of the Foundation has always been at the core of all endowment-building decisions. Simultaneously, it has ensured strong financial oversight and monitoring by the Council keeping management decisions close and costs down. This is an advantage that the Foundation holds given its close ties with the Corona Organization that gives it easy access to a wealth of financial expertise. Foundations without such ties would need to consider other options for building this in-house expertise.

Know One's Own Limits

The case of the Foundation also demonstrates the importance of maximizing limited resources by maintaining a lean and efficient administration while recognizing limitations in both capacity and skills, and bringing in outside expertise and human resources when necessary. As the endowment grows, the Foundation has realized the need to outsource parts of it to outside experts. It will continue to pursue this strategy in the future. Such outsourcing will entail creating structures that will further guarantee continued oversight and monitoring.

Spin-off Benefits of Endowment Building

Finally, the case illustrates a variety of other non-financial benefits brought about by its self-financing efforts. Most notably, the case attests to the greater flexibility and financial discipline the Foundation is able to bring and contribute to developing other organizations in the country that in turn strengthen Colombia's social development.