SIZE COUNTS

Stephanie Strom, the New York Times' philanthropy reporter today quoted a study by the National Commission for Responsive Philanthropy the sum of which is that among a majority of foundations caught in the Madoff debacle those with smaller boards were more likely to lose money. Or put another way more of us are smarter than just a few of us.

In fact I read a study (which naturally I can't find right now) that concludes decisions made by a group may be more on target than decisions made by just one or a few people. (If you know the study I'm thinking of please let me know).

Board size and diversity matter for more than just making or losing money. The real challenge of governance is to strike a balance between the benefits conferred by a diverse board versus the risk of a board so large effective governance is impossible. Many charities develop big boards out of hope over caution - that the larger the board the more potential givers there are. This is almost never true in my experience. The results are first the gifts don't materialize and second a small executive committee winds up running the organization making for a two class board roster of greater and lesser beings. When that happens the diversity evaporates and the risk of dumbing down decision making is just as great as with the small board.

I haven't yet seen the NCRP study Strom quotes but I am more than familiar with a few of the foundations included in the study. The real problem is less size than cronyism. Small charity boards of every sort are more often stocked with intellectually arthritic founders, friends of the founders and family members or others who tend not to sass the alpha personality. In my view a board of five to seven people - provided they are truly independent - can govern effectively.

Size counts. But a willingness to break wind at the picnic counts for more.

Charity "Handle" $307.65 Billion in 2008

Donations to charitable causes
in the United States reach
$307.65 billion in 2008.

The sky is not falling. Henny Penny can go back to picking up corn."
Del Martin, Chair Giving USA Foundation

Though 2008's estimate of giving posted an inflation-adjusted 5.7% decline from 2007's $314 billion this is a very good number in the sense that the rope broke on the drop through the gallows. As I blogged last week " ... The free fall and economic collapse didn't hit big until the last quarter of 2008. So the data for 2008 will not reflect the full damage; 2009 will." 2008 is the first decline in giving in current dollars since 1987 and only the second since Giving USA began publishing annual reports in 1956. The full report on philanthropy was released today for the 54th year by Giving USA Foundation [TM] and can be purchased on-line at www.givingusa.org.

As always individuals gave the most money (75% from the living and 8% from the actuarially matured); foundations came in at 13% and corporations, 5%. Bequest giving may be higher than shown because it only includes estates large enough to exceed the estate tax exemption. Also I think corporate giving is under-reported because it has no way to measure cause related marketing or gifts-in-kind, both increasing sources of company donations.

On the where-it-goes side religion as always is a plurality - in 2008 35%; education 13%; gifts to grant-making foundations 11%. The remaining 41% of contributions - all in single digits - went to arts, environment, health, human services, social betterment and international affairs.

I'm just showing a little garter here. The full report is very much worth reading.





"Go back to basics. Tell your story honestly and positively."
Nancy Raybin, Chair Giving Institute

Rooney Appointed: White Smoke Rises

Patrick Rooney has been named head of the Center on Philanthropy at Indiana University. With colleague Melissa Brown and Center staff Giving USA - the most complete compendium on giving in the US - is coopered together each year and as everyone in the field knows it is the resource. Nothing else comes close.

Giving USA Foundation is the publisher and sales arm but the research and writing is done in Indianapolis. The announcement said after a "nationwide search" Patrick was named. I was not surprised but when Patrick and I had breakfast in New York a few months ago he assured me he was not a shoo-in. This I did not believe.

Patrick is of course an economist but he does not speak in tongues and he is definitely not morose - two hallmarks of the discipline. Not only does he explain abstract stuff in an interesting way he is cool to be with unlike say Ben Bernanke. Can you imagine?

Patrick's anointment and the attendant white smoke from Indiana comes just a few weeks before the 2009 edition of Giving USA will appear, no accident of timing I'm sure. As I'm no longer Foundation chair I don't get a sneak peak at the data and I haven't a clue. But that there will be a decline in absolute inflation-adjusted dollars in the total giving handle seems foregone. Duh. So Patrick will have plenty of media attention as he labors to turn crap into ice cream. That should keep him busy for awhile.

Next year's Giving USA might show even more horrendous data. The free fall and economic collapse didn't hit big until the last quarter of 2008. So the data for 2008 will not reflect the full damage; 2009's data will. But what might otherwise ameliorate that bad news is that since the end of March a powerful market rally and other budding signs of recovery - more new housing starts, stabilizing retail sales and a decreasing rate of increase in unemployment rates - are key markers. It does seem that the last quarter of 08 and the first quarter of 09 marked the slough of our despond. ("Powerful rally" means I am again opening my investment statements without a standby ventilator).

So Patrick:

Harper's Index for May reported almost $12 trillion of value has been lost so far by American individuals and families in this meltdown. Isn't that almost as much as the so-called intergenerational "wealth transfer"of which we heard so much during the bull markets? I always wondered if that was just lipstick on a pig because I never understood the assumptions. Is it time to re-calculate or just "fugeddaaboutit?" Okay the wealth was transferred. When I asked another social scientist about it a few months ago he said the model didn't consider the greed factor.

But fund raisers do.

MAKING OUT WITH MADOFF

In the one Ponzi fraud I've known about first hand and in all the others I've only read about the perps were never interested in enriching anyone but themselves. The curious thing about Madoff is that real charities got real money - some over many years. An as yet undetermined number of billions may have been stolen but at the same time charities scored in the hundreds of millions - some over many years. This puts the blessed use of tainted money in a whole new light.

The court appointed trustee charged with clawing back as much as he can for redistribution to the rightful claimants is flinging lawsuits around and now it is possible the feds will step in with both civil and criminal complaints. Oy! Everyone assumes a lot, if not most, of the pilfered pelf will never be recovered. Theoretically at least the charities who were the recipients of stolen money may have some exposure even if they had no way of knowing it. Most of them have probably spent whatever they got from the Picowers, J. Ezra Merkin, David Levy, Stanley Chais, et al.

Nonetheless many charities (including a few of my clients) unwittingly received and spent stolen money to perpetuate their noble cause - and the people and organizations that benefited might not have been served without that money. And unlikely as it might be suppose a charity knew how some money they got came to be and went ahead and used it anyway on the principle that there is a greater good. That couldn't happen. People just don't behave that way. Do they?

Money and Sausage

The old joke about sausage is you don't want to know how it's made. The same applies to fortunes. Best not to how they were made.

When the Picower Foundation collapsed the day after Bernard Madoff's arrest. I felt really terrible. Through a client I had met Barbara Picower a few times. I found her intelligent, savvy and truly dedicated to dispensing the Foundation's money with wisdom and compassion. On my recommendation she hired one of my 2007 grad students. This particular client was hit with a seven-figure loss now and the loss of future gifts as well; and others with whom I am or were involved got hit too.

How could a billion dollars just go poof and the nez plus ultra Foundation offices on the 39th floor of 9 West 57th Street be shuttered overnight? I found this passing strange. Then earlier this week attorney Irving Picard the court-appointed trustee responsible for hunting down Madoff's assets so they could be returned to the investors Madoff screwed brought a "claw back" action against the Picowers, charging them personally with being "complicit in [Madoff's] fraudulent activity." As the Wall Street Journal reported, Picard said the Picowers had to know it was impossible for 14 funds they had invested with Madiff could each have returns of over 100% a year.

He is seeking the return of several billion dollars from the Picowers. How much was distributed by the Foundation we don't know yet. But we do know real charities got real money over time. How much will be clawed back is anyone's guess. Mine is not much. Word on the street is that Picard is bringing a second claw back suit against another major philanthropist - in the same Palm Beach social network as the Madoffs and the Picowers. I'll write about that one too but not until the law suit is brought (if it is) and the name is public.

The Picowers' high profile lawyer is William Zabel, former chairman of Human Rights First, trustee of amFAR and secretary of - oops - the JEHT Foundation which also crashed the day after the Madoff arrest. Mr. Zabel said the Picowers were "victims" and not "complicit." As in Casablanca when Captain Renault (Claude Rains) says to night club owner Rick Blaine (Humphrey Bogart) " I'm shocked, shocked to find that gambling is going on in here!"?

So if Picard is right and prevails we will know how the Picower fortune was - if not made - certainly enlarged. The current trial of Anthony Marshall charged with bilking the estate of his allegedly demented mother Mrs. Vincent Astor is interesting counterpoint. Forebear John Jacob Astor was not a paragon of probity. When you look at old fortunes you can conclude that it takes about three generations to bleach out the stains. By then nobody cares about how the money was made - only where it's going.

But sausage is of the moment. Pass the mustard and sauerkraut please.

I AGREE TO JOIN GM'S BOARD! (Call me)

Today's Wall Street Journal reports search firm Spencer Stuart has been engaged to hunt up new board members. GM is now owned by three entities two of which are in a category of nonprofit organizations: the US government and the UAW. As we say in New York I "know from" nonprofits and I know about governance as well.

By losing staggering amounts of money and being nonprofitable for several quarters one might propose that GM is a nonprofit though it didn't plan to be. GM resembles all too many nonprofits in three important ways:

• It now states its budget in terms of its deficit.
• Its board fits the dictionary definition:" ... a board is a long thin wooden object."
• Management has been inept.
  

So Spencer Stuart why not me? I'm a turnaround kind of guy.

I know nothing about cars north of the steering column. But: as an adjunct faculty member at the Milano management unit of New School University we and the part-timers at NYU were unionized by the UAW a couple of years ago. But Ron Gettelfinger I won't be in your pocket.

And I pay taxes; that makes me an owner!

Finally there is really nothing inherently different about the roles and responsibility of a business board of directors vs. a charity board of trustees.

• Stewardship of assets.
• Oversight of management.
  
• Accountability.
  
• Transparency.
• Commitment to stakeholders.

I promise to give up my Toyota Rav 4 which I love and which Consumer Reports lists among the top five cars sold in the US. But not until GM turns out a car that's better or at least equal.

Also I promise to fly coach and use my own miles to upgrade to business.

So give me a call. I'd be happy to come in for an interview. Do I have to wear a tie?

GEORGE A. BRAKELEY JR.

George A. Brakeley Jr., died on May 1st in Naples, FL, at the age of 93.

It's good that none of you checked out that day. George would not have countenanced the competition; he was a tad challenged limelight-wise.

George Brakeley was an innovator in philanthropy and fund raising, a leading spokesman for the consulting profession, and a founder of the the American Association of Fund-Raising Counsel (now the Giving Institute Etc.). His career began with John Price Jones, Inc., of New York City, which was known at his retirement in 1983 as Brakeley, John Price Jones (today Brakeley Briscoe, Inc.). He also founded firms bearing his name in Canada and on the West Coast.

Those, friends, are the facts. George is on my very short list of true greats in this business.In his prime he sucked the air out of a room. He was patrician, snobbish, elegant, commanding and brilliant. He was a consummate name-dropper, a curmudgeon at the best of times and he could be a nasty SOB at times. My kind of guy. I'm sorry to say he mellowed in his later years and the last time I saw him seven or eight years ago was at an all day retreat in Stamford, under the aegis of the Association of Fundraising Professionals (AFP) chapter there - which he had helped find its sea legs after a less than great start.

What makes George one of the greats - along with guys like Maury Gurin and Harold Oram was his take on the business. He was tough, intuitive and a great teacher not by patience or example but just because he knew. You either got it (and him) or you didn't.

He was mannered but never dainty. He didn't just eat half a grapefruit. He picked it up and squeezed all the juice out and he did it gracefully. That was George. Grace and purpose.