Free Pass

Do nonprofits give their donors a little too much credit?

I’m not asking if nonprofits give their donors too much recognition. It’s fine to carve donors’ names into bricks, put their names on theater seats, or affix their names onto laboratory buildings. It’s great to honor them at gala dinners and list them in annual reports. I support all of that. Donors deserve the attention, and to provide it is wise stewardship on the part of nonprofits.

What I’m asking is whether nonprofits defer too much to donors in discussing how their gifts should be used.

Here’s what I mean:

A donor comes into the office of Good Cause, Incorporated, and tells the CEO, “I’ve thought it over, and I’d like to create a permanent endowment fund to support your work. And I’m ready to fund it with a gift of $100,000.”

What the nonprofit CEO no doubt says is: “How very generous! How wonderful! We’re so honored!”

What the nonprofit CEO may be thinking is: “How cool! Now our endowment will be $100,000 larger! This is a feather in my cap!”

What the nonprofit CEO probably should think is, “Gosh, we could use that money in better ways. That $100,000 will only yield an annual payment of $4,000 or so. That’s hardly a game-changer. I’d much prefer to use the funds over the next two years to launch that new program we’ve been talking about. Or to repair the roof. Or to replace the furnace. Or to hire a part-time bookkeeper or a second teacher for our pre-school program. Can I talk the donor into another kind of gift without insulting her or losing the funding?”

Very few CEOs balk at creating an endowment. Tradition tells us that endowments equal stability and respectability. There’s a cultural reverence for endowments. In fact, the size of the endowment is often seen as a proxy for the quality of the organization.

Think of U.S. News and World Report’s annual listing of the top colleges and universities. Along with analyzing incoming students’ SAT scores and GPAs and the average class size and the number of volumes in the library, the editors invariably consider the size of a school’s endowment as part of their appraisal. A large endowment connotes institutional quality.

That presumption is contagious. The whole nonprofit world wants to build an endowment – even though a small community-based nonprofit could hardly be more different from a large university.

As I discussed recently, endowments make sense – sometimes. But usually there are more immediate uses that would have greater impact. I urge donors to invest in people, not the markets. And I urge donors and nonprofits to have an honest conversation about what the best uses of a generous gift might be.

But the gravitational pull of the permanent endowment is strong. Creating endowed funds gives donors a sense of immortality. A large endowment gives nonprofits a sense of financial invincibility. And so a donor’s desire to create an endowment goes unquestioned.

But it should be questioned.

Through a comment on my blog recently, a friend urged me “to respect that there are some donors who are personally passionate about the permanence of their gift.”

To which I say: I’ve been working in the nonprofit world for thirty years, and I’m yet to find someone passionate about creating a permanent fund. Passionate about a cause or an institution? Absolutely. Passionate about creating an endowed fund? Never.

Here’s the reality: The average donor has thought much more about the purchase of his last car than about his gift to establish an endowment.

When an endowed fund is established, people celebrate, and a very modest bit of good comes of it. The impact is deferred. The endowed fund is not bad, but it’s surely not great, and unless the gift is of enormous size relative to the organization, the new fund is not going to elevate how the organization delivers its services.

Rarely does the nonprofit ever really help the donor analyze the impact of the gift. The donor’s decision is thought to be unassailable. This kind of unquestioned trust in the donor is well-intentioned, but misplaced, and it serves neither the donor nor the organization well.

So the next time a donor starts talking about a permanent gift, I suggest you quote Jackie Robinson, who said, “A life is not important except in the impact it has on other lives.” Talk about how a permanent fund is a very generous sort of gift, and point out its advantages and disadvantages. Then discuss some of your current needs. Talk about impact. Show how spending that same money over the next two or three years would change the lives of people now in your program. Talk about how using the money in the short-term could change lives forever – and how those people would subsequently affect those whose lives they touch.

And if the donor insists on creating a permanent fund, smile and say that that’s great — because it is. In the end, it’s the donor’s call. The important thing is that you’ve given the donor some opportunities to think about what various types of gifts will actually accomplish. The kind of gift the donor makes is the donor’s choice — but the key is to help make it an informed choice.

Copyright Alan Cantor 2012. All rights reserved.

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