Update ...

As reported in today's New York Times it turns out Starr Foundation had divested much of its AIG stock but in May still had 15.5 million shares of its corpus parked there. So instead of losing 90% of its 3.3 billion value (in 2006) it lost only two-thirds! All commitments will be honored according to foundation president Florence Davis. A tough break for many charities around the country but especially in New York which was particularly favored in Starr's grantmaking.

The piece goes on to note that many other foundations funded with Wall Street excess wealth are now having to downsize but because of its size Starr really sticks out.

The market continues to gyrate and charities are understandably nervous. This morning the letter below came across my desk:

"Dear Colleagues:

When I was growing up on Long Island, we would go on school trips to the United Nations. I can still recall the awe with which I entered the building as a young child. Looking down from the balcony of the General Assembly Hall, I considered myself in the "inner sanctum," where major international events — most vividly, the vote on the creation of Israel — took place. So you can imagine in a week that began with a rally to protest the appearance of Iran’s president at the General Assembly, I was deeply moved to sit on the assembly floor as President Shimon Peres spoke. It felt like he was returning something good to this inner sanctum.

President Peres approached the podium shortly after Hamid Karzai, president of the Islamic Republic of Afghanistan. President Karzai spoke of the huge challenges facing the international community and explicitly recognized the need for Israel to live in peace and security. President Peres followed, communicating the readiness of the people and government of Israel to reach peace with its neighbors. He concluded with wishes for the Jewish New Year, placing a yarmulke on his head, and invoking a prayer in Hebrew from our tradition. As the hall broke into loud applause, several people shared the same sentiment: What a privilege to witness this moment — the president of Israel, a Nobel Laureate, speaking in Hebrew on the 60th anniversary of Israel before the very body that created the Jewish state.

It was a similar feeling of privilege that infused Alan "Ace" and Kathryn Greenberg’s home on Thursday evening when our major donors came together to launch our 2009 Annual Campaign, as they have for the last 22 years. Guest-speaker, Governor David Paterson, surveyed the challenges facing New Yorkers and was eloquent in extolling the leadership role of UJA-Federation.

We are framing this year’s campaign as one "for those who can," recognizing that while virtually everyone has been impacted by the tumultuous economic events that continue to unfold — and some will not be able to make gifts or will have to reduce them — most of our major donors still can. Anticipating the difficult campaign ahead, campaign chairs Howard Milstein and Linda Mirels proposed, and the Executive Committee authorized, that increases leading up to the Greenberg event will be placed in a matching challenge fund to encourage new and increased giving.

While every dollar has not yet been counted, I am pleased to report that the philanthropic leadership of the New York Jewish community pledged $43 million to UJA-Federation’s 2009 Annual Campaign, surpassing last year’s record-setting level by $2 million! The challenge fund raised close to $3 million. In one evening, 110 people came together and proclaimed, "Despite this economic environment, we are among the most privileged men and women on the planet, and we are certainly the most privileged generation of Jews." The recognition of blessings filled the room, together with appreciation of the indispensable role of UJA-Federation and its network of agencies, particularly during these times.

Colleagues, this will be a challenging year. My hope is that each of us, and those close to us, will enjoy a year of health and will be able to stay connected to the blessings of life, which are, at the end of the day, the most important assets we have.

Shanah Tovah to you and your families. May this be a year of peace for Israel, our people, and for all men and women throughout the world.

Shabbat Shalom

John"

I have no sermon to preach - except that your passion for a cause will show you the way!

Star(r)light ...

In my view The Starr Foundation has been one of the best in New York. Its management is highly competent, it is open to new ideas and people coming in; it is one of the few major foundations who will make operating grants rather than limiting itself to capital (makes those grants as well) or specific projects. It is no-nonsense. A program officer there once told me "we are here to give away money and I am always on the lookout for good things to give money to." That you don't hear much. What you get is "you don't fit our priorities," i.e. foundation-speak.

Starr is the giving arm of AIG.

Oh oh.

The foundation got its start-up money from the estate of Cornelius V. Starr, an insurance magnate who developed the Asia market before WW II - and thereafter was funded with AIG stock. NPR and Bloomberg news reported on Monday that AIG stock was once 90% of its portfolio. Starr's president Florence Davis noted that Starr had sold two-thirds of its AIG holdings between 2006-2008. But exactly what the foundation's corpus is right now is unclear because the sale of price of AIG stock fluctuated and we don't know what investments replaced it, or what they may have earned and she didn't say. But she did promise that present commitments would be honored.

Starr's tax return for 2006 (Form 990) is the latest posted on Guidestar and showed the fair market value of assets at over $3.3 billion. Assuming a yearly 5% payout, the norm, yields grants over $150 million. Close enough. In 2005 they granted out $162 million.

If Starr was 90%invested in AIG stock in 2006 - the year of their last tax filing - that would have reduced the corpus to $330 million and cut grants to about $15 million - about the size of many of the family foundations I work with. How much did they actually lose? AIG stock traded at $3.93 at noon EDT today. Ouch.

In the past Maurice (Hank) Greenberg the former CEO of AIG essentially controlled the foundation. For example he had to sign off personally on an eight-figure gift to an Oram client a few years ago and also gave the nod each time on several seven-figure grants to another one. He may have stepped away but we really don't know. He is certainly otherwise occupied.

Everything here you could have pieced together elsewhere. With one difference: Starr has been a real leader in philanthropy, and a great example for how - on the good side - foundations should behave.

It's easy to stay angry at AIG. But join me in hoisting one for Starr and for hoping they'll come back - bigger and stronger than ever - with the most diversified portfolio we've ever seen!

Tear Down That Wall (Street)!

As of 2:40pm Eastern the Dow Jones is tanking yet again, down 204 points - on the heels of the worst week on Wall Street since the Great Depression. It's a great time to announce a multibillion dollar campaign! And last week, the day the Dow dropped over 400 points, or the day after when it put 400 points back - whatever - U. C. Berkeley did just that - kicking off a $5 billion campaign - with almost $2 billion already committed.

Do they know something we don't? Actually not. Even affluent people can lose out in a tough economy because they spend or invest right up to, and over, their affluence. But those with accreted wealth spread their investments around. They are the people who are Berkeley's best prospects as they would be and are in any serious philanthropic venture.

Is the collapse of Wall Street as we knew it, or discerning Governor Palin's view of the Laffer curve relevant to anything? British painter Damien Hirst sold $200 million worth of art at auction last week, no problem. The Sunday New York Times events page pictured folks all gussied up- preening at openings here, galas there, business as usual, with serious money raised.

I've had two meetings today with charities. We talked about meeting budgets by raising money - and not about the economy which, like the weather, we can do nothing about.

Goldman, Sachs has survived. Treasury secretary Henry Paulson was their CEO. Separate, unrelated facts. Profit remains privatized. Congress is about to socialize Wall Street's losses but not health care. President Bush - well what about him?

Up your meds and take a look at the new Giving USA Foundation's "Spotlight" publication by copying and pasting this into your browser. file:///C:/Documents%20and%20Settings/Henry%20Goldstein/My%20Documents/MyFiles1/Giving%20Institute/SPOTLIGHT/Spotlight%20%233%202008_Final.pdf

(United) Way To Go!

Is United Way (finally) getting it right?

The old formula was distribution driven: collect money on behalf of a number of UW accredited human service agencies and then distribute it across the board according to a formula, saving employers and employees(who were enrolled through payroll deductions at work) from selecting and vetting the beneficiaries directly.

Over time a number of things happened:

- Big manufacturing had the largest employee groups. Most of those jobs went away.

- Charities like Planned Parenthood, groups serving the abject poor and the hardest to reach; grass roots organizations and others whose missions were broader than or combined more than human services alone (education, arts in the community, immigration, HIV-AIDS etc.) were generally left out of United Way and as the government's combined federal campaign grew in importance (state and federal employees being another large work force component - jobs that couldn't be outsourced for the most part)successfully challenged the UW throttle hold on work place solicitation.

- Like the Red Cross the UW brand was compromised by multiple scandals at national and local levels. It didn't help that the Red Cross - a major UW beneficiary - was decomposing before our very eyes.

- UW developed a major gifts competency over time through establishing the popular De Tocqueville societies at United Way around the country for donors at $10,000 and up. Traditionally UW eschewed major gifts from individuals asserting that such solicitations should better be left to their member agencies who were in fact least capable of generating them. The unintended consequence of this really good idea has been that many major donors wanted to designate their gifts, a proposition long resisted by UW because it wanted to have the distribution power.

No doubt other societal influences played in. But the welcome result is that UW around the country has recognized that it had to do its business a new way if charitable dollars were going to get where they are needed most. Three weeks ago a big story in the Chronicle of Philanthropy headlined the new approach: prioritizing giving to "focus on helping young people, increasing financial stability for poor families and preventing domestic abuse."

The story goes on to underscore that "such scenarios are playing out across the country as United Ways make changes that are altering the fund raising landscape." New York City and the San Francisco Bay Area are two places where big changes are on the drawing boards.

These new initiatives are not without serious challenges. Cherry-picking among programs within nonprofit agencies, United Ways deciding on their own what the priorities should be, and most of all faced with raising new money over the old - because the basic UW safety net must still be kept in good repair in a struggling economy - make for a tough script.

But I believe this is absolutely the right thing for United Way to do because for a long time now I have been wondering if charitable dollars are really getting where they're needed most. I have prevailed on Giving USA Foundation to sponsor a discussion on this and in the next blog I'll tell you about the Gurin Forum we're doing in New York in December.

Their (Red) Cross To Bear

"The Red Cross is struggling with how to pay
for aid to storm victims."

-- Wall Street Journal, 5 September

I'm sure they are.

Having squandered the brand, having lost the confidence of many philanthropically inclined folks, having demonstrated incompetence at the highest levels (board and top management) having run with neither transparency nor accountability - why should they expect the public to pony up?

The Red Cross logo is probably the best known icon in the world; for years all they had to do was flash the cross if they needed money -or even if they didn't and through United Way participation* or direct chapter based solicitation the American public responded - with money and blood, literally.

Many US and international charities see their contribution revenues spike during crises like floods, earthquakes, war, forest fires, etc. only to see their fund raising bottom out in between. So the Red Cross's strategy was to raise as much money as possible at the peak, salt away as much as possible in reserve for later catastrophes, and pay out for the current appeal as moderately as possible. That actually is not a bad plan. The problem is that they failed - consistently - to tell their donors this. They now tell the truth. At least in the small print. Some of the time.

The red Cross's lack of candor brought more scrutiny and surfaced serious management problems at both the national and chapter levels. At the national CEOs turned over rapidly. A made-for-the-tabloids sex scandal knocked off the former head of the IRS who had just been hired; and his predecessor, an accomplished naval executive, couldn't hack it with the board. Questions kept coming up about the security of the blood supply, the Red Cross's ability to turn fast in a crisis, and ongoing misunderstanding about where the money went.

The Red Cross is now in make-over mode and the jury's out. But in my view the best they will do is paper over their problems. The Red Cross began as one of just a few federally chartered organizations, a good idea at the time. But federalism brought with it the right of the president to appoint a number of board members who, like other presidential appointments of either party, did not necessarily rise to a level of much quality. Like many ambassadorships or other federal sinecures an appointment was often a thank you for services rendered elsewhere.

The poor attendance of these so-called public members at board meetings also helped to concentrate power in management - for better or worse - and also magnifies the accountability problem.

The Red Cross business model is antiquated. I can see two possible solutions to their dilemma. First the federal government could take over completely - funding all existing Red Cross functions. Given FEMA this option may fail to excite some readers. But as a federal agency a board of trustees is not required and all the present incumbents can become an "advisory committee."

The second - and highly preferred - option is for the Red Cross to privatize, a very appealing idea for the last eight years, and who knows what portends? I would recommend to either President Obama, or President McCain (it hurts to type that, yes!) this course. It would enable the Red Cross to begin anew by privatizing the board: all presidential appointees kaput; start over. Legislation would be required to change the existing chartering provisions for board appointments.

As I am fond of repeating "fish rots from the head down." In my experience with thousands of nonprofits, 95% of the time, until the board is fixed and fully understands and enforces its responsibility for oversight, management will still not be accountable, actions will still lack transparency, fund raising will still suffer - and most of all public confidence will continue to wane.

(For an earlier Red Cross blog see the January 23rd post).

*Next blog: Is United Way Finally Getting It Right?

Staff Up

Because most charities are service organizations much of their expense is personnel and one of their critical challenges is attracting, employing and retaining staff - at all levels but especially at the top. And because they are more than anything else mission driven, nonprofits tend to have the most bench strength in program. Other key institutional functions like board development, organizational management, fiscal management,communications and development, i.e., fund raising are in my experience often found wanting.

Because nonprofit organizations have so wildly proliferated since World War II - there are now an estimated 1.4 million non-religious charities in the US alone - it is more difficult than ever to find people. On the scale of difficulty recruiting top management- CEOs,CFOs, marketing and fund raising executives remains a dicey business with high failure rates, low retention and a lot of burned out people (stress is combustible).

As the private nonprofit economy has grown (to more than 10% of the work force) a concomitant parallel development has been the rise of professional associations covering most areas of nonprofit activity. Much of the work of these groups is dedicated to offering in-service education, "credentialing," continuing education credit and a visible labor market. Also graduate degree programs in nonprofit management are now in place at about 50 US colleges and universities and a few have undergraduate majors as well.

Over the years I have had the privilege of working for scores of effective and efficient organizations. On the other hand I have seen some where people are pushed out - or push themselves out of - organizations that are poorly governed, badly managed or worse. Most interesting to me - counterintuitive though it may seem - the efficacy of nonprofit organizations has less to do with money than I used to believe. I recently came across a survey of for-profit businesses that found the number one motivator for most people was not money but working conditions.

In the business world there is usually a management hierarchy that enables a company to vet executives over time trying to push the best to the top And we all understand that doesn't always work). In the nonprofit world there is a search committee; inevitably the size of the search committee is inversely proportional to the caliber of the person ultimately employed. Just as in the nonprofit world there are founder dominated or nepotistic enterprises and in those cultures trouble sidles up. In the nonprofit world the founder hangs on and goes out toes up. In the business world major share owners force the founder out and install professional management. In the nonprofit world it takes a lot for a board to expel a CEO let alone one of their own.

In my view nonprofits have paid less attention to better and best management practices than they might have. That includes management holding the board accountable for oversight,the board holding management responsible for implementing policy and programs, and both parties working together on issues of long term strategic planning, governance, stewardship, asset and revenue growth - as well as transparency, marketing and financial management - including fund raising. Happily these problems make for billable time. Sadly it shouldn't be this way.

Board Beyond Belief

A board is a flat slab of wood or other material used for some specific purpose. Second it is an organized body set up for a specific purpose: to advise, oversee, govern and exact accountability from a business, a charity, or other type of organization. In some of the boards I've served I can't really tell that there's much difference from the first definition to the second.

But I also think some people who run nonprofits, my area of specialty, have about the board they want or deserve - despite their protestations. In their cups more than one of this type has confided to me that they view their board as an expensive nuisance that contributes less than it should in time, money or smarts and demands more than it should through micro-governance, bird-brained schemes and high maintenance. These executives usually have a poor to awful relationship with their chairperson and other trustees.

The very best boards I've seen are well led at the top and respectful of management. They understand governance, pay attention, show up and are clear in their expectations of management; if not generous to a fault the board members are strong contributors.

The not so good boards are most often founder dominated."Fish rots from the head down," says the ancient proverb. Board members and management go along; no one wants to cross the founder. New ideas and new ways disappear into committees that never meet. Sometimes it is hard to feel the stiletto or even know where it went in.

The best nonprofit CEOs I've worked for have figured out a modus for dealing respectfully and candidly with the board chairperson; they make sure the board's membership rotates and that there is reasonable enforcement of term limits. They are transparent in their dealings with the board, they are accountable, they consult and both offer and seek advice. They are tough-minded and most of all they have humor.

Then there is a vast middle: In the board room tarries people who should have left - toes up or otherwise; often the board is observably passive/aggressive. Meetings are stunningly soporific because of the baffle-them-with-bullshit style of deliberate information overload, incomprehensible financial reports, suffocating detail about the golf event and no time left to discuss "program."

This is the question I ask myself: if this organization's board did not exist what difference would it make? If I'm not sure I have a board beyond belief!