Don't Be Such a Stranger

A recent study examining giving patterns of wealthy donors noted that 60% of households that stopped giving to a specific charity did so because they no longer felt connected to the organization.

This lesson is important for all nonprofit organizations, particularly in these difficult times. Economic circumstances may result in declined giving, even from long time supporters, but it is more important than ever to maintain relationships with donors.

Charity executives need to be turning up the communications--emails, letters, reports--to ensure that donors continue to feel connected to the organization and understand that their support is making a difference. Donor cultivation is always important, but in this economy it becomes even more critical to let your supporters know how much you appreciate them.

"The Times They are a-Changin'" (Bob Dylan)

Just when you think the economic news can’t get any worse, it does. Daily stock market declines, a credit crisis, and talk of a long lasting, international recession crowd the headlines and broadcasts. Nearly everyone is worried about their own jobs and the financial health of their companies.

For those of us in the not-for-profit world, the stress is even greater. Our success is directly dependent on the income of others; donations come from disposable incomes. Despite the best intentions and the philanthropic nature of Americans, I am uncomfortably certain that there will be a decline in charitable giving this year.

So how should nonprofit organizations respond? If you don’t have the money to fund your programs, the answer is painful yet simple--you must cut. But if you do have enough capital to fund your current activities, what should you do? Cut now to save for next year? Continue to spend normally while expecting to substantially reduce budgets in the future? Nothing is black and white, and there is no one right answer. Here are a few suggestions to help not-for-profit executives weather the current economic climate:

• Continue to review budgets and trim anything that is unnecessary. Donors will want to see that you are responding to the economy. They’re cutting back, their businesses are cutting back, and you should too.

• Continue to fundraise--if you don’t ask for money, you won’t get it. Don’t be surprised if even long time donors turn you down or decrease their giving, but don’t give up. You must keep asking.

• Involve your board in the discussion. Reach out to key supporters for their opinions. Have them help you identify different options.

• Ask board members for their own personal financial commitments. Now is the time for a board to show leadership. If they can’t commit during these times, you can’t expect others to do so.

• Develop an action plan that includes future decision-making milestones.

• Communicate with your supporters. Let your community know how the economic uncertainty will (or will not) impact your organization and the demand for your services. Focus on donor stewardship so that when the market does come back, your support base will too.

There may be some not-for-profit organizations--like their for-profit cousins--that do not survive the current downswing. This is an unfortunate reality. However, if your services are in demand, your programs effective and your operations sound, you will get through this period. It may involve hard decisions and unpleasant actions, but the times have to change back at some point--don’t they?

"These are the times that try men’s souls." (Thomas Paine, 1776)

The front page of today’s Wall Street Journal included a headline that read “Worst Crisis Since ‘30s, With No End in Sight.” It is the latter half of this sentence that is particularly frightening.

The current level of economic uncertainty and turmoil is unprecedented and leaves many not-for-profit organizations fearing for their futures and unsure as to what the appropriate near term actions may be.

Many of my colleagues—particularly those who work for Jewish organizations that traditionally solicit funds now, in advance of the Jewish High Holy Days—are wondering if it is still appropriate to ask for money during a time when their donors may be facing personal financial crises. My answer to them is yes. You must ask. You may change the way you ask and you should understand when even longtime supporters say no, but you must continue to ask.

In the coming months, the role not-for-profit organizations play will increase in importance. Demand for programs that address basic socioeconomic needs like food, health and education will rise exponentially. The ripple from the financial market meltdown will soon be widespread, unemployment across all sectors will increase and the need for assistance will grow. A shrinking tax base will reduce government funds available, and not-for-profit organizations will be called upon to fulfill critical needs in communities across the country and around the globe.

Organizations must keep up their development efforts in order to meet this demand. No one said the work was easy, but we all agree that it must get done.

Fight Fiercely Harvard

Philanthropy News Digest: Alumni Group Presses Harvard to Do More With Its Endowment

NY Times: Alumni Group Tries to Elicit Social Action From Harvard

Much has been made in the press lately about a group of Harvard alumni who are pressuring the university to use some of the estimated $35 billion Harvard endowment to fund programs beyond Harvard. In particular, the articles tell the story of one alumna who asked her classmates to redirect their reunion contributions to struggling colleges in Africa and requested Harvard’s support in this process.

I salute the efforts of alumna Paula Tavrow to help African colleges and commend her for encouraging friends and contacts to support this cause. I also understand the frustration many alumni may feel (full disclosure: I am a Harvard alumna) when being solicited for donations to help grow an endowment that is already larger than the GNP of many countries. However, I understand Harvard’s position and the university’s reluctance to officially disperse funding to outside organizations.

First of all, while not intimately familiar with the mission of the Harvard endowment, I must assume that it grew out of donations from alumni who expected the money would be used to directly benefit Harvard. While giving to colleges elsewhere in the world is commendable and needed, such an act could alienate many longtime Harvard supporters. Plus, it just isn’t nice. No matter how noble the cause, you can’t take money that was given for one purpose and use it for another.

Second, there is no good argument in favor of Harvard sharing alumni information that was given with the expectation of privacy. Tavrow’s group expresses frustration that Harvard refuses to share its alumni contact list. Good for Harvard—fight on! When I provide Harvard with my personal information, it is under the assumption that it will not be shared with outside organizations who might want to solicit me for funding. I’m sorry, but “the ends justify the means” argument is not working for me here. With all the social networking sites and online resources available, there are plenty of other ways to reach fellow Harvard alumni who want to be found.

Despite these defenses, I am not letting Harvard off the hook so easily. Harvard has what I term CTWM—“Change The World Money.” CTWM is money that when deployed correctly can have a real impact. I will reserve my general thoughts on CTWM and how it is being used by the institutions and individuals who have it for another blog.

There are endless ways Harvard could harness its vast resources to change the world. Harvard could create programs that teach alumni about effective philanthropy. It could educate its students about world problems and require service obligations for students to get hands on experience. Harvard could create more scholarships for students from underdeveloped countries, or initiate programs that will help these students pave a path toward higher education. It could implement professional development and training programs for university administrators, as well as professors from other universities. Harvard could use its endowment to subsidize the salaries of graduates who choose public service or not-for-profit careers. Many these ideas may already be in motion (disclaimer #2: I don’t always read the alumni magazine), and if so—my apologies.

Harvard has a worldwide reputation as being a leading academic and research institution. The superlatives and “ests” (biggest, largest, best) that are used to describe the university’s achievements, qualifications, awards, etc. are endless. Harvard now has the opportunity—and I would argue the obligation—to leverage its capabilities to find new ways for the university and its community to change the world. I look forward to watching the progress.

If You're Happy and You Know It Clap Your Hands

Science Magazine has just published a study that documents something those of us in the philanthropy business have known for years—people who donate to charities or splurge on gifts for others are happier than those who do not. While most of those surveyed assumed they would be happier if they spent money on themselves, the opposite proved to be true. It’s worth keeping the results of this study in mind over the next few weeks as you tally up your 2007 charitable giving for your taxes, or find a crumpled $20 bill in your coat pocket—or even as you deposit your 2008 “economic stimulus” tax rebate.

Paint by Numbers

Ellison Research has just published a study that reveals 62% of Americans believe charities are spending too much money on overhead. Those polled indicated that they perceive most charities as spending an average of 36 cents per dollar on overhead vs. the 22 cents these same people believe charities ought to be spending. However, according to The Chronicle of Philanthropy’s comments on the study, most watchdog groups report that well-run charities often spend between 30 and 40% on such costs.

The Chronicle of Philanthropy discusses the study in detail and points out the obvious issue for charities: donors, many of whom have no idea how to run a not-for-profit organization, may be less likely to donate if they think the charity spends too much on overhead.

There is another point that should be noted: donors are now demanding more and more accountability from organizations. Gone are the days when philanthropists were satisfied to write checks and assume that the programs they funded were working; they now seek measurable results, often by way of demonstrated improvement and side-by-side comparisons with other organizations. Donors have a right, and--in my opinion--an obligation, to seek detailed information about how their money is being spent. However, they also must understand that there is a cost to retrieving, preparing and analyzing this data. You can’t demand infrastructure and not expect to pay for it.

Donors, charity “watchdogs,” and non-profit managers must understand that there is no “one size fits all” approach. The percentage that an organization spends on overhead may vary from year to year depending on capital campaigns and projects, one time events, currency fluctuations or other unusual situations. While the numbers are important, it’s the story behind the numbers that paints the full picture.

Physician, Heal Thyself

A few weeks ago I wrote about several new organizations that seek to provide information on charities to help donors make decisions. One of the organizations, GiveWell, has been
in the press lately because its two founders—one of whom served as Executive Director—promoted GiveWell on various Web sites while posing as neutral third party commenters.

In response to this discovery, the board of GiveWell demoted the Executive Director and fined both him and his co-founder $5,000 of their $65,000 salaries. While I realize that everyone makes mistakes, I am shocked that an organization whose mission is to reveal “the truth” about charities would accept such practices from its management. Perhaps the “slap on the wrist” each received for this behavior would be appropriate in the hedge fund world, but it should be unacceptable in the philanthropic one.

If the founders would go to such extremes to promote their organization—which had recently been featured on CNBC and mentioned in both the Wall Street Journal and New York Times—how can their rating system and opinion of the operations of other organizations be taken seriously? The GiveWell founders have deliberately misled the very people they claim to help. Instead of pointing out the problems with other rating systems, they should be taking a hard look at their own practices.