Donors' Rites

This morning's Wall Street Journal carries a front page article - "New Unrest on Campus as Donors Rebel," basically a rundown of several situations in which the original intentions of a donor have allegedly been set aside to meet some other need. For example Fisk University is. as the piece says "in litigation over its plan to sell paintings ..." by the late Georgia O'Keefe, works given to the struggling college in perpetuity.

What this and similar articles that have been appearing all around brings to mind an ancient aspect of trust law called cy pres: the legal doctrine that allows a court freedom in interpreting the terms of a will or gift if carrying out the terms literally would be impracticable or illegal. At the same time, the general intent of the testator or donor is supposed to be observed as closely as possible.

A full discussion of cy pres comprehensible to lay people ran in the May 1 2003 University of Pennsylvania Law Review. The bottom line is though the law does allow courts freedom in interpretation for the most part the courts have read the law narrowly and have been generally reluctant to set aside the wishes of a donor as expressed in his or her will.

Probably the most famous case of all was that of Stephen Girard a 19th century philanthropist in Philadelphia who bequeathed his fortune (considerable for that time) to a score of local charities. But his biggest gift was the residue of his estate, $5 million, to found a school for the education of white males. Even at the time the "will was controversial. It offended the religious community, and later females and non-white minorities," writes Thomas J. DiFilippo in his book Stephen Girard, The Man, His College and Estate.

Litigation ensued for over a hundred years but ultimately the courts held that the will was discriminatory, a violation of public policy that of course had evolved and the first children of color were admitted after an NAACP protest (and numerous others).

The point here is that for some donors leaving money to a charity of whatever type is a non-starter because they cannot be sure that "perpetuity" means "perpetuity." If controversies arise even while the donor is still alive what might happen after death?

For we laborers in the presently dessicated vineyards of philanthropy cy pres doesn't come up much. In over 40 years I have only been involved as the consultant in two or maybe three serious instances.

But in these hard times as everyone grapples with need the temptation to fiddle with donor intent is out there and no one really knows what a court might do next. It got the head of the San Francisco Foundation fired years ago in a famous cy pres case involving the Buck Foundation and Marin County. Mrs. Buck died and left her estate - which had grown to $260 million - to the "needy of Marin County," of whom there were too few to soak up so much money. The Foundation, charged with distributing the money, sought to overturn the will. It lost.

Search For Terrestrial Intelligence: The New Ford Foundation

Two headlines in this morning's Times caught my eye: first I read "New Leader Overhauls Ford Foundation" and then "Boldly Going Nowhere."

The first piece, by beat reporter Stephanie Strom, tells the story -- in the headline -- as we were taught in J. 101. The second is an Op-Ed piece on the unlikeliness of interstellar travel if ever because the long journeys could not be fueled through any extant technology. Damned if that didn't make me think of how tough it must be for Ford Foundation CEO Luis A. Ubinas, imported from McKinsey two years ago, to make this NASA of philanthropy more accountable and less intimidating to applicants.

When Mr. Ubinas was brought in Those Who Mattered wondered why the Ford trustees would hire a guy with no previous experience as a non-profiteer. But now their reasoning is clear. Ford had become an example of drip-up management. It seemed to me that individual program officers essentially controlled the grant-making process. Those of us who dealt with Ford learned that these POs had "portfolios" and grant budgets that they controlled and it was incumbent on the mendicants to convince the right one that their program deserved funding. This system, never planned as far as I could observe, more or less evolved and though it could be frustrating lent a human bent to the process.

Reading between the lines of today's articles I infer that Mr. Ubinas's two year evaluation of what he took on has resulted in the corporatization of Ford as a top-down managed organization which given its size and unwieldliness is I guess how a McKinsey consultant would work a client. Ford's last financial statement showed assets of $11 billion (before the free fall) and direct grants of $532 million net of expenses and hold-backs for losses.

A visit to the Foundation web site -- which by the way has the full Ubinas manifesto on which Ms. Strom reported -- struck me in an odd way as a don't-bother-coming-in scenario. Interstallar thinking does not seem to me to be encouraged. If you are worthy Ford will find you as in " ... Our programs will address eight significant social justice issues ... grounded in our mission and history and ... familiar to our partners." (Italics added).

I hope there is a side hatch on the Ford vehicle where new ideas and new organizations short on fuel out of gravitational pull but with all rockets firing might enter.

Here's to the Ford galaxy:

• Access to education
• Democratic accountable government
• Ecobomic fairness and opportunity
• Freedom of expression
• Human rights
• Natural resources, sustainable development
• Sexuality and reproductive health and rights
• Social justice philanthropy.
  

My colleagues and good friends at Raybin Associates have put out the best thing I have so far seen on fund raising in these daunting times. What makes it different is that it has real ideas that nonprofits - regardless of size, cause, or experience can put to use.

With their permission:



“Ten Things Your Board Can Do…” “Eight Things to Tell Your Donors…” Avidly, we read each article as it comes across our desks, looking for magic. Surely, someone smarter than we must know how to bolster our fundraising in these parlous times. But we are disappointed. “Focus on your mission.” “Monitor expenses carefully.” “Be strategic.” “Thank your donors.” Please… tell us something we don’t know.

Despite all that is being written about the new philanthropic reality, no one can say what the world will look like in the next six months, 12 months, two years. All we have right now is a collection of anecdotes – many of them contradictory:

· The Brooklyn Academy of Music just announced a $300+ million building and endowment campaign. Carnegie Hall and the Metropolitan Opera are cutting their programming this season. WNYC (New York public radio) reports the completion of a $63 million campaign – $5 million over goal – with the last $11 million raised since September, 2008.

· We know of a cancer research organization in New York whose late fall Gala has historically been almost entirely supported by the financial services industry. Yet they raised nearly as much this year as last. But we’re also hearing of organizations canceling or scaling back major events for fear they will fail, or because they might be viewed as too glitzy in a decidedly anti-glitz time.

· Most of our New York City independent school clients report that they are at least holding the line with their Annual Funds at year-end – though it’s unclear what final numbers will look like in June. But we’ve seen some national data suggesting that annual giving in schools is down an average of about 9% this year.

· There are reports of people whose financial circumstances have not changed appreciably stepping up to larger gifts to compensate for those who cannot give as much this year.

We also have some facts. More than 40 years of data from Giving USA makes clear that even in extended downturns and recessions, philanthropy decreases less than other aspects of the economy. While the current situation is unprecedented in our lifetimes, we think it likely that experience will hold true again. (For more on the data, go to our website, www.raybinassociates.com, and click on “Giving During Recessions and Economic Slowdowns” on the home page.)

Magical thinking got our economy where it is today. But it is only reality-based action that will eventually get us out. And it will. There is no magic to fundraising, and there never has been.

So what are the “Nine Top Things You Should be Doing to Maximize Your Fundraising in a Downturn and Position Your Organization for the Inevitable Upturn?” Just like everyone else, we’ve been reading all the words of wisdom out there. Summarized, tempered by our collective century of experience, and with a few contrarian thoughts, we offer the following recommendations.

No magic here, just practical, common sense advice:

1. Development 101 has never been more important. Ask respectfully for your donors’ support. Thank them promptly and appropriately.

2. Pessimism becomes a self-fulfilling prophecy. Stop using very negative language like “dire” and “catastrophe.” It’s not time to panic.

3. Board members and volunteers may bring their personal anxieties to the table. If they’re feeling poorer, and especially if they have lost high-status, high-paying jobs, they may be reluctant to consider initiatives that could require them to take visible positions as leaders and donors. Reassurance from the CEO and Development staff about their value to the institution may be required. But in extreme situations, when their negativity becomes a serious drag on the organization, they may need to be encouraged to take a leave of absence from their leadership positions.

4. Don’t insult your donors by assuming they won’t be able to give this year and leaving them out of Annual Fund solicitation – even if they worked for Bear Stearns, Lehman Brothers, or Merrill Lynch. Maybe they can’t do $25,000 again, but if they’ve been steady supporters and you’ve stewarded them well, they’ll almost certainly try to give something.

5. “Your Annual Fund gift will help support the operating budget” is not a strong enough case for support right now. Be specific as you can about what difference giving will make to core mission-related programs – meals that will be served, families for whom financial aid makes all the difference, inner-city public school children who will still have music classes. Be clear, too, about what may have to be cut.

6. Development staff, Board members, and other volunteers may feel uncomfortable asking right now and don’t know how to respond to donors who say they can’t give. They may also feel awkward about not being able to give as much themselves. Since you want to be out there asking, it would be a good idea (and probably a great relief) to get staff and volunteer solicitors together to talk about their fears and concerns, and to practice ways to respond empathetically to donors whose circumstances have changed.

7. Don’t switch your fundraising emphasis from current support to planned giving. We’re hearing some conversation that this is a good way to help donors fulfill their philanthropic urges at a time when significant other giving may be out of the question. We spend a lot of time encouraging our clients to get their planned giving programs off the ground, and would never tell them to back off. And if you’re in an endowment campaign, these planned giving conversations may make sense. But generous as it is, a $250,000 charitable trust from a 50 year-old woman is not going to pay the rent any time soon. As income from all sources – endowment, tuitions, fees, philanthropy, government – declines, the short-term fundraising priority for most organizations must be budget support. You have to be out there asking for current gifts.

An exception may be the donor who wants to set up a charitable lead trust, which provides income to the nonprofit for a fixed period of time, then the principal reverts to the donor or designated beneficiary. Lead trusts, however, are best funded with appreciated assets, so you may not have too many candidates for this planned giving vehicle.

8. If you’ve put plans for a campaign on hold, use this time to make sure your organization is ready to go when things begin to turn around. (Even if you’re not preparing for a campaign, these steps are the foundation of a strong Development program for any organization.)

- Work on Board development to make sure Trustees understand and are comfortable with their leadership roles. Plan some form of education about the issues in your field at each meeting. Be strategic about identifying new skills and talents you’ll need in the future and recruiting new champions for your cause.

- Engage Board, staff, donors, parents/members/users, and friends in developing an action-oriented strategic plan. Identifying a hierarchy of preferred options for the next two to three years will pay tremendous dividends – both in keeping the focus on mission and priorities, and when you get ready to frame your campaign case for support.

- Help Trustees and other volunteers refine their cultivation and solicitation skills with regular training and practice with different scenarios.

- While you’re asking for current support, take the opportunity to deepen relationships with your donors by talking with them about their interests, passions, and concerns. But don’t make every encounter a solicitation.

- Invest in building public awareness about your organization. Identify creative ways to bring the community in to learn more about who you are, what you do, and the people who make it all work. Raise your profile as an “expert” with Op Ed’s and letters to the editor. Take the time to update your website and your publications.

9. Now is an ideal time to take a step back and address all of those operational issues you swear you’re going to focus on in the quiet summer months, but never get around to.

- You may not be able to hire additional staff, but look ahead to what new skills and experience you may need when the economy begins to turn around; draft job descriptions and revise the organizational chart.

- Give existing staff a variety of professional development opportunities that will make them stronger members of your team and equip them for their roles in any future campaign.

- Take a hard look at your processes and procedures: gift handling, data entry, reporting, gift acknowledgments, relationship with the Business Office.

- Clean up your database and all those inconsistencies from past file conversions (finally!).

- Start prospect research or update existing work – recognizing that many asset values will be in flux for a while.

- Make sure you have working lists of major prospects, with detailed cultivation steps for each. Make it someone’s explicit responsibility to ensure that the plans are implemented and updated. Schedule at least bi-weekly prospect management meetings.

Some of the organization-building tasks identified in 8 and 9 above can be effectively undertaken by experienced staff and Board members. But others (strategic planning, a Development Audit, perhaps Board development and public awareness) usually benefit from guidance by seasoned outside consultants.

******

We know that giving is going to drop. The combination of the stock market contraction and the decline in personal income make that a virtual certainty, for philanthropy closely tracks both. But in this peculiar time of anxiety and hope, we believe that with sensitive asking, plenty of support for solicitors, pinpoint clarity about what difference people’s gifts will make, and a reasonably upbeat attitude, all organizations have it within their control to keep the slide from being cripplingly steep.

And don’t forget to focus on your mission, monitor expenses carefully, be strategic, and thank your donors.

Best Wishes,

Nancy Raybin Kim Hawkins Elizabeth Lowell

How now down Dow?

Yesterday the Dow fell to 6723.29 its lowest close since April 1997 when it sank to 6583.48 It had begun the year at 6448.27. Over the rest of the year the market steadily rose and closed out at 7908.25 racking up 1459.98 points up 18%. So far this year the Dow has shed 1577.57 points and the mood out there is dismal with the market having tumbled 15% since January 2nd, and it is now down 50% from the 14000 high in October 2007.

Because the market bounced 1997 ended on an optimistic note that was reflected in Giving USA's 1998 data. In 1997 giving rose from $133.46 to $143.46 billion. To put this in perspective giving in 1997 was 1.8% of GDP and last year with the absolute dollars more than doubled reported giving was 2.2% of GDP.

The last quarter of 2008 was when the lemmings went over the cliff. In my view the full effect on philanthropy will not be felt until 2010.

Now that we have that out of the way let's eat cat food, up our meds, move to windowless offices and get back to client work.

At 1220pm the market was up 5 points! I'm back to meat loaf.

Give Now

That these are hard times for the nation's nonprofits needs no further elaboration. Charity leaders are criticizing the President's budget plan because it cuts the tax advantage of a gift from people in the 33-35% tax bracket to 28% plus he proposes bumping the capital gains tax from 15-20%. Mercy. New York Times philanthropy beat reporter Stephanie Strom summed it up neatly - "among donors the concern was one of being forced to limit donations when charities need their support the most."

Social scientist Paul Schervish a Giving USA Foundation board member and esteemed colleague says "Obama is setting in place tax-rate and discount-rate policies that tend to lower charitable giving. And he is doing this exactly during a time when the recession, financial insecurity and depreciation of assets also negatively affect charitable giving."

Do I qualify as a "charity leader?" I'm president of Women's Prison Association, treasurer of Jazzmobile and a director of PICO National Network and Giving USA Foundation. And I disagree with the other anointed leaders: My take is that the $300 billion plus donated to US charities is a pimple on the great butt of the government trillions it will take to turn this nation around. Or otherwise put the insiders' chattering about the lessened charitable deduction fails utterly to consider that without the government contracts and grants that pass through the books of virtually all but discretely religious organizations private philanthropy - essential as it is - will simply not cut it.

The greater good is in Obama's courageous commitment to taking on all interest groups, including ours, because that is exactly what's required. My guess is at least 90% of the so called "charity leaders" voted for him, not exactly a shocker given the Ken and Barbie alternatives. Obama made clear his priorities throughout the campaign. What's the big surprise here?

Stephanie Strom also quoted veteran New York consultant Margaret Holman: "Research has shown again and again that for major donors, taxes are at the bottom of their list of reasons they make these gifts" and she reported Giving Institute director Bob Sharpe's trenchant observation that the alternative minimum income tax already limits the charitable tax deduction to 28% for the very wealthiest donors.

Giving USA has been measuring the philanthropy handle since 1967. The bar chart looks like a Madoff report: up virtually every year for 40 years - through recession, war, rampant inflation, high hem lines, low hem lines, 9/11 - and tinkering from time to time with the charitable deduction.

Yes as a professional I'd like those who give the most to get the most. But as I Brasso their plaques I'd like to see universal health care, a green environment, poor kids who can read and write, full employment - and if the arts can't prosper they should at least flourish.

Not to mention an end to foreclosures, two wars and serious jail time for the anti-government Ayn Randers whose (objectivist) greed got the country into this mess.

Charity is big business, 10% of employment, 2% of GDP, millions of organizations; we are as much a special interest as farmers, oil companies, defense contractors etc. Somebody needs to put total interest over self interest.

Now that would be an act of charity.

Give now.

GIVE BACK THE MONEY?

Give Back The Money?

On February 11th The New York Times (Feb. 11) ran a story suggesting that the boards of foundations that invested money from Madoff and thereby realized ill-gotten gains may have acted imprudently and below the level of fiduciary responsibility to which they are legally bound by failing to properly assess the provenance of Bernie's money. The IRS could (theoretically) step in and demand that the boards make the foundations whole and not to be caught out each of the fifty states could potentially do the same. Oy.

Do the charities to whom these foundations awarded tainted money now have any legal obligation to return those funds? I raised this in my obit on the JEHT Foundation (below) and have been thinking about it since.

So I asked Sarah D. McShea an attorney specializing in legal ethics about it. "I don't think there is any legal duty on the part of recipients to return grant money to foundations that improvidently invested their endowments with Madoff" she said. So legally grantee boards would seem to be off the hook. But as a trustee of three nonprofits, and as a consultant to many others I would advise looking gift horses in the mouth.

• I don't want charities to be embarrassed.
• If pledges are involved I don't want charities to be stiffed.
• In these hard times there seem to be "mini"-Madoffs emerging every day.

A Bullet Dodged

R. Allen Stanford
(Photo: Joe Skipper/Reuters)

Several federal agencies, including the F.B.I. and the I.R.S., have spent recent months looking into the business activities of the Stanford Financial Group, run by R. Allen Stanford. But now federal authorities are investigating whether those rewards were simply too good to be true. Several federal agencies, including the Securities and Exchange Commission, the F.B.I. and the Internal Revenue Service, have spent “many months” looking into the business activities of the Stanford Financial Group, which is based in Houston, and Mr. Stanford’s bank based in Antigua, which issues high-yielding certificates of deposit, according to two individuals briefed on the investigations who were not authorized to speak publicly.

During my time as chairman of Giving USA Foundation a fellow board member began an adagio with executives of Stanford. The quid we offered for their quo was a multi-year full page back cover ad on our jewel publication Giving USA. There was a lot of dither and the expected gift though always imminent never materialized. We could not have known we'd have sold out our brand.

An old Southern preacher was asked if he would accept a gift of tainted money to rebuild his fire-ravaged church. He is said to have replied "... t'aint enough."

The JEHT Set

Yesterday New York Times columnist Nick Kristof posted to his blog a list of family foundations decimated or at least severely wounded in the Madoff mess. The links were brought to my attention by Oram colleague and principal Marilyn Bancel.

http://kristof.blogs.nytimes.com/2009/01/29/madoff-and-americas-poorer-foundations/?hp

http://graphics8.nytimes.com/packages/pdf/opinion/29madoff.pdf

The JEHT Foundation is one of the total casualties. I attended this event in my capacity as president of the board of Women's Prison Association a JEHT grantee:

A memorial service for the JEHT Foundation was held in New York on January 22^nd. The death was announced December 12^th immediately following the highly publicized arrest of Bernard (Ponzi) Madoff. The cause of death was traumatic exsanguination – i.e., the foundation’s money bled out suddenly and acutely. JEHT was six years old, wiped out like so many others by imprudent investment with Mr. Madoff. JEHT is survived by its board (the donors and a few outside directors) and by its staff which has been let go effective January 31^st.

As expected wonderful things were said about the corpse – but nothing about the corpus: pretty much everyone present knew JEHT’s funding came through Norman Levy the father of the founder Jeanne-Levy Church. He had long invested with Mr. Madoff. A board of presumably financially sophisticated people was snookered like so many others. At the time of its death notice CEO Robert Crane said “the returns had been steady and strong for all these years. It was shocking.” Like observations, and even stronger remarks, have been made by many others similarly affected.

Painful, moving and emotional remarks were made by Ms. Levy-Church the foundation’s driving force whose devotion to progressive causes was described by one onlooker as “rare and remarkable.” Eulogists included the head of Atlantic Philanthropies, a representative of Pew Charitable Trusts and several grantees cut off more or less in the prime of their JEHT support. Mourners were drawn to the foundation’s edgy SoHo offices for the service and they came from the grantee community, public service and other family foundations. Words like “cautionary,” “sad” and “nice wine” were uttered by some. Encomia were reproduced on large posters and a memorial book was available for mourners to record their names and whatever comments they might have cared to make.

It is believed that Mr. Madoff was especially attracted to foundations because the 5% payout they were required to draw down annually was a manageable amount for him to pay back each year, leaving the “principal” at rest- principal that turns out not to have existed, having gone out to pay the other investors who came along later, the essence of the Ponzi investment model as taught in most business schools.

JEHT Foundation, despite its youth, became one of the most effective small foundations in the country partnering with other much larger foundations like Pew and George Soros’s Open Society Institute to fulfill a mission and supporting good work virtually ignored by traditional philanthropy.

The Foundation was established in 2000. “JEHT” is an acronym for Justice, Equality, Human dignity and Tolerance. Its mission was to support programs that promoted reform of the criminal and juvenile justice systems; to ensure that the United States adhered to the international rule of law; and it worked to improve the voting process by enhancing fair representation, competitive elections and government transparency.

A recent posting to its web page said that “the JEHT Foundation Board deeply regrets that the important work that the Foundation has undertaken over the years is ending so abruptly. The issues the Foundation addressed received very limited philanthropic support and the loss of the foundation’s funding and leadership will cause significant pain and disruption of the work for many dedicated people and organizations. The Foundation’s programs have met with significant success in recent years – promoting change in these critical areas in partnership with government and the non-profit sector. Hopefully others will look closely at this work and consider supporting it going forward.”

In its brief life JEHT gave away more than $75 million in aid of what one of the eulogists described as “orphan causes.” In the world of philanthropy – on whichever side of the table one sits - experienced non-profiteers long ago learned that questioning the provenance of money is seldom a good idea. As one observer commented “you wouldn’t want to know.”

It is possible, perhaps even likely, that some of JEHT’s good works came from bad money and that grants to deserving progressive nonprofits were based on ill-gotten gains. Who would ask? No grants are likely to be returned.