Tuesday, April 17, 2012
Saturday, April 14, 2012
Philanthropy Funding Government Work? There’s a Foundation for That—Several, Actually
By Rick Cohen, NonProfit Quarterly, April 13, 2012 (from WSJ article)
Amidst the multiple ingenious forms of philanthropy in this country, who would have ever thought that the Central Intelligence Agency had its own philanthropic arm? The CIA isn’t alone. Other federal agencies have created or spurred the creation of philanthropic offshoots that serve as mechanisms for accessing private, charitable capital. They function a little like the private foundation arms of public or state universities. Some public universities claim to be hamstrung by their dependence on state government appropriations and oversight, unable to compete with private universities for charitable donations, so they have created 501(c)(3) philanthropic arms to raise money for programs and activities that supplement what the universities can do with their public funds—for example, funding new programs or supplementing the salaries of university execs or, often, football coaches. The fact that they are 501(c)(3)s makes their fundraising less than fully transparent, leading to tugs of war between the universities and state legislators and the press, both of which are interested in which donors are paying for what. Several federal government agencies, from the CDC and the FDA to NASA and the CIA, are employing a similar strategy—one that we suspect many people are not aware of and one which raises several interesting questions about the role of private philanthropic dollars supporting U.S. government programs.
The CDC’s Foundation
The National Foundation for the Centers for Disease Control & Prevention, commonly referred to as the CDC foundation, provides additional capital to recognized national and international health issues that have broad recognition and support, but require additional private capital to make significant progress. It would seem like the CDC benefits quite directly from the Foundation’s ability to target resources to specific high priority CDC program initiatives. The Foundation’s latest Form 990 indicates that its total revenues plunged from $57.6 million in FY2009 to just less than $23 million in FY2010. It appears that the CDC Foundation was hardly immune to the philanthropic recession that hit the nation’s nonprofits between 2009 and 2010. Nonetheless, it still managed to spend resources on initiatives such as the Bloomberg Initiative to Reduce Tobacco Use ($7.3 million in FY2010), the Meta-Leadership Summits for Preparedness ($1.7 million), and a program of disease surveillance and response in Cameroon, the Democratic Republic of the Congo, and the Central African Republic ($2.8 million).
Major foundation sources for the CDC Foundation included the Bloomberg Family Foundation ($10.2 million in 2009), the Doris Duke Charitable Foundation ($5.8 million between 2005 and 2010), the Robert Wood Johnson Foundation ($24.2 million from 2004 to 2011), as well as seven-figure grant totals from the Woodruff Foundation, the Marcus Foundation, the John S. and James L. Knight Foundation, the Ellison Medical Foundation and the Avon Foundation for Women. Not unexpectedly, the Foundation has also received $28.1 million between 2003 and 2010 from the Bill & Melinda Gates Foundation. In fact, part of the Bloomberg money is targeted for specific collaboration with Gates. Gates has also granted another $10.5 million to the CDC directly, $8.6 million of which came in 2009 and 2010—unconstrained by questions surrounding providing direct funding to a government agency.
The CIA’s Foundation
The Central Intelligence Agency’s foundation, In-Q-Tel, serves as a venture capital tool to promote technology development for the CIA, functioning in a way that a government agency might not be able to do. By matching private investors and research institutes, In-Q-Tel provides unique private sector to private sector support for technologies that can presumably be delivered or sold to the CIA. According to its 2010 Form 990, In-Q-Tel “identifies and partners with companies to help deliver solutions to the Central Intelligence Agency and the broader U.S. intelligence community (IC) to further their missions.” There is nothing like In-Q-Tel in the nonprofit sector, and its history, [LINK=http://www.iqt.org/about-iqt/history.html]in its own words[/LINK], is worth reading.
Unlike the CDC Foundation, In-Q-Tel’s revenues grew from $50.4 million in the year ending in March of 2009 to $56.4 million in 2010. That sum helps pay for hefty salaries—over $800,000 in salary and benefits for the CEO and over $700,000 for the EVP and “managing partner.” Annual trustee compensation at In-Q-Tel is typically between $35,000 and $37,500 for board members (except for Jami Miscik, the president of Kissinger Associates, who took only $17,500).
In its Form 990, In-Q-Tel makes it clear that it does not disclose its financials to the public, so where does the oversight of In-Q-Tel come from? The 990 states that “IQT receives regular oversight from the CIA and other client agencies, who keep Congress informed of the company’s activities.” Of course, the activities of the CIA don’t get the public, transparent scrutiny accorded to other agencies. On the other hand, rather than funding the CIA, it seems that In-Q-Tel is, in a way, a venture capital firm for the CIA’s unique technology needs. According to the 990, “IQT’s strategic investment model gives it the agility—often lacking within traditional government contracting approaches—to find nurture entrepreneurs and companies that can provide a supply chain of innovation which enables the IC to benefit from technology advances.” IQT claims to have “cultivated a network of more than 200 venture capital firms” and leveraged $1.5 billion to support technology development for the CIA.
These are just two of the many government agency foundations already in existence. There are many more. The United States Space Foundation, for example, supports the National Aeronautics and Space Administration (NASA) with a mission of advancing “space-related endeavors to inspire, enable, and propel humanity.” And if Sen. Daniel Inouye (D-Hawaii) can attract support for his proposal, a new government agency foundation may soon be born.
Is a Foundation for FEMA Next?
On March 15, 2012, Inouye introduced legislation to create a nonprofit foundation for the Federal Emergency Management Administration (FEMA). The bill would establish the Preparedness and Resilience Foundation, a private, nonfederal, nongovernmental, nonprofit entity which would raise private funds to support activities such as fellowships for government and tribal officials to work with FEMA, research on disaster relief, government forums, conferences, data collection, and writing and publishing books. The potential attractiveness of the Foundation to FEMA is that, as the bill states, it would allow the FEMA administrator to accept donations or gifts from the Foundation “for the purpose of aiding or facilitating the work of FEMA” and would also allow FEMA to accept “voluntary services” provided by the Foundation—that is, services provided by the Foundation to carry out FEMA program activities.
Unlike In-Q-Tel, Inouye’s plan for the foundation affiliate of FEMA explicitly prohibits compensation—other than incidental expenses—for foundation trustees. Inouye’s bill had no cosponsors, last we looked at the Library of Congress website. On the floor of the Senate, Inouye described the FEMA entity as “a philanthropic intermediary between the Federal Emergency Management Agency, FEMA, and the private sector.”
Inouye has crafted a proposal that wisely avoids the problems created by state university foundations that try to use their 501(c)(3) status to circumvent public disclosure and scrutiny. The bill clearly calls for disclosure by requiring the publication of an annual report from the Foundation detailing the source and amounts of all real and personal property gifts and all donations of money. Some of us believe that disclosure will not scare away donors, particularly if they are contributing to disaster relief services rather than million dollar football coach salaries. Ultimately, Inouye’s core argument is that “the lack of appropriate mechanisms make it difficult for FEMA to receive disaster related funds from private sector entities” and he has stated that the plan would follow the model of the CDC Foundation described above.
However, Inouye’s proposed foundation doesn’t seem to be quite as clear in its mission. Unlike the CDC, for example, FEMA has been subject to pretty strident criticism from political leaders of both parties. Although the agency is much different from its troubled state in the immediate aftermath of Hurricane Katrina, there are politicians who find much to criticize in FEMA’s operations and its part in the nation’s homeland security apparatus. Appropriations for FEMA are never an easy task, especially in a budget environment of sharp cutbacks.
Also, the proposed Preparedness and Resilience Foundation seems like it could, more than other government-affiliated foundations, compete with nonprofit disaster relief and recovery entities for difficult-to-find private philanthropic capital—the very nonprofit partners that FEMA counts on to deliver crucial emergency assistance. FEMA actually works closely with nonprofit partners in disaster relief and reconstruction. According to https://www.fema.gov/library/file, FEMA sees “the nation’s vast network of business, industry, academia, trade associations, and other non-governmental organizations as equal—and equally responsible—partners in every phase from preparedness to response and recovery to mitigation.” FEMA’s budget includes grant funding for public-private partnerships, which is fine unless FEMA’s own fundraising (through this proposed nonprofit affiliate) ends up competing with its intended partners—partners that don’t have FEMA-like direct access to federal appropriations. It remains to be seen whether the FEMA foundation will come to pass, but the proposal, and the workings of other federal government agency foundations, raise important questions about the relationship between the private philanthropy and the U.S. government.
Foundations Funding Government: Oddities or New Budgetary Strategy
Are these “federal nonprofits” simply charitable oddities and anomalies or harbingers of a strategy of fiscally strapped federal agencies to find monies that they can’t get from the federal budget? Like the Gates Foundation’s direct grants to the Centers for Disease Control, there is no reason why philanthropy could not and should not think of government as a potential beneficiary of its largesse. To the extent that government agencies or the nonprofits government agencies create service a public purpose, they might be considered just as worthy of foundation support as any other not-for-profit entity created to advance the public welfare.
However, there is a reason why the nonprofit sector exists as something other than an appendage of government. With the help of philanthropy, nonprofits come up with new ideas and approaches that government can emulate and replicate. With the help of philanthropy, nonprofits advocate for the government services and programs our society needs. But nonprofits and the foundations that back nonprofits act as a supplement, not a substitute, for government programs and government expenditures. If it were otherwise, philanthropy becomes little more than a source for plugging government budget gaps.
Moreover, if government becomes attuned to the notion that philanthropy can and should take the place of decreasing government revenues, these relatively small government foundations serving the CDC, the CIA, and FEMA will be followed by others, even though the supposedly immense assets of private and public foundations do not add up to more than a few days of government expenditures. The appetite of government agencies for access to philanthropic capital might turn from immense to insatiable as federal budget deficit challenges multiply in the future. If government foundations end up competing with the nonprofits that now serve as partners with government in the design and delivery of programs, the competitive playing field will be hugely tilted against the nonprofit sector—particularly when donors to government foundations might be able to earn access, face-time, and improved relations with decision-makers and legislators.
With the CDC Foundation functioning much like a quasi-public or nonprofit entity, it may be an anomaly. Created in part due to the intelligence community’s need for constant technological innovation—and secrecy—In-Q-Tel might also be an anomaly. But if Congress takes up Sen. Inouye’s proposal and seriously considers the creation of a FEMA foundation to raise private monies for FEMA-related activities, that will be a sign of some concern for nonprofits.
Posted by Kathy Sullivan, CFRE & ESCH Consultant
Monday, April 2, 2012
Monday, March 19, 2012
Should Your Nonprofit Build an Endowment?
This isn't new, but is worth reviewing. It's from NonProfit Quarterly from June 21, 2006. Hope you find it useful -- Kathy Sullivan, CFRE
Wait a minute—the first question should be, “What’s an endowment?” Unless you work under a rock, you probably have a common-sense understanding of the term, but if you are going to bandy it about with accountants or regulators you need to understand that the word has a technical meaning that doesn’t always square up with common usage.
In everyday use, people talk about an endowment as money in the bank that earns interest and dividends they can use for operations. But technically, the term refers only to that portion of your investment pot that is “permanently restricted” because the donors said that they do not want you to spend the money, or because you collected it with the understanding that it was a permanent investment reserve. Management or a board of directors can set aside additional reserves for the purpose of investment, but technically this money is not endowment—accountants sometimes call this “quasi-endowment.” Now, this distinction often doesn’t matter, especially if you’re just interested in how interest and dividends help your cash flow. But it does matter when you’re doing your accounting, and it also matters when a cash-strapped organization starts thinking about paying for operations from those cash reserves.
Should you build an endowment? Well, there is little debate that you should set aside money for a rainy day—a cash reserve that can help to smooth out the ups and downs in your operations. Just as investment advisors recommend that individuals have six months of emergency funds tucked away in a savings account, nonprofits should also strive to have cash on hand to hedge against uncertainty. This isn’t endowment, or even quasi-endowment—it’s just operating slack that you might need when, say, your donations take a hit one year, or you have an unexpected legal expense.
An endowment is established when you and your donors consciously build a reserve for the purpose of creating a financial bedrock for the organization. You can’t spend the principal unless the donor or a court says so, but the income from that principal is usually fair game. This investment income is golden, because you don’t have to earn or solicit it. Some gift agreements specify how interest income should be spent, but it typically comes with no strings attached. There is no magic figure at which your pot is large enough to call it an endowment, but it isn’t a serious asset unless it is roughly twice as large as a typical year’s operating expenses. If you’re only earning enough interest each year to pay for a board luncheon, you aren’t yet in the endowment game.
Organizations that are in the endowment game, however, reap the benefits of solidity and unrestricted income. An endowment can also be a very positive symbol that shows the community and potential donors that your organization is not a fly-by-night operation. It signals that yours is a flush organization that plans to be around for a very long time—this alone can bring large donations to your door.
So, then, why do donors give to endowments? We know that many donors cringe at the idea that their donations are going to anything besides delivery of services, so why would somebody give money that purposely is not going to be spent? Well, we should not overlook the generic “power of the ask”—endowment campaigns are visible community events that give donors a new reason to contribute to an organization that seems to be serious about planning for the future. But there are two other reasons about “the future” that motivate some donors to contribute to endowment.
The first is the idea of perpetuity. This is the same motivation that causes some patrons to create private foundations. In addition to whatever philanthropic motivations drive them, many people who spend a lifetime building an empire and a reputation for beneficence want that empire and reputation to live forever. The impulse for some part of us to live on forever isn’t a negative one—some say it is the same deeply seated psychological impulse that drives humans to have children. When we give contributions to operations, we get a warm glow from knowing that the money is going to be used soon to further a charitable mission. When we give contributions to endowment, we experience the glow of perpetuity. Our money will undergird a community institution long after we’re gone. That’s a powerful motivator, and one that has generated billions of dollars in investable assets in the nonprofit sector.
The second motivator is similar, and that’s the drive for elites to control community institutions.1 This doesn’t apply to the average donor, but there are a few people in every city who both have money and are prominent movers in the community. Transferring money and property across generations is one thing, but transferring standing in the community is another. Making big contributions to endowments of elite institutions (like museums or private schools) is one way families seek to transfer status to their children. Heirs can gain standing in community institutions based on the contributions their family has made to these institutions. If you are one of these institutions, this is another motivation you can tap into to generate endowment.
So, endowments are built through the union of an organizational commitment to building an investment reserve and a relationship with donors who believe that this is a good investment in the future, for their community, and for themselves. When the union is a healthy one, the result can be an endowment large enough to generate investment income that can be used for a variety of organizational and community purposes. Who wouldn’t want to be sitting on a big pot of money?
Before you run out and start cultivating your endowment, though, you should know that there’s a flip side. Endowments are not good for all organizations, and not everyone loves them. The biggest argument against endowments—and the one that comes up in almost every deliberation about whether to start one—is that endowments shortchange today’s charity for an unknown future.2 There are two related concerns here: one having to do with addressing current needs, and the other having to do with the declining value of money.
Current needs is the one that at least one of your board members will bring up, and is very possibly the reason why your board will vote not to have an endowment. “Why should we put a million dollars in a bank account when we can use that to serve a million more lunches?” Or buy a hundred thousand more books. Or facilitate a thousand more adoptions. Or renovate the façade of the theater. Many nonprofits are in dire need of more money, and most can at least think of an immediate way to use more. Therefore, it isn’t surprising that some people will value the use of contributions to meet current needs rather than build an endowment. And it isn’t just your board members who might feel this way—it might well also be your patrons, clients, elected officials, and local newspaper. Some people go so far as to say it’s not ethical to lock money in the bank when there are so many necessary ways to spend it now. Before you know it, you have bad press and declining donations—and you wish you’d never thought of raising an endowment.
The issue of the declining value of money has to do with the growth of the economy over time. When a charity spends my $100 contribution now, it gets $100 worth of good out of my money, whether that’s in operations, administration, or future fundraising. But just like $100 was worth more in 1960 than it is today, that $100 in 50 years (or even next year) will be worth less than it is today. Contributions to an endowment have less and less real dollar value over time. Endowments might keep up with inflation if they reinvest some of their earnings, but most nonprofits value their endowments because they get to spend those earnings. Consequently, nonprofit endowments face a never-ending battle against time.
There are a few other issues to consider, too. Endowment building is a strategic decision that requires management attention and a relationship with donors. As such, organizations need to be prepared to commit resources for managing both money and people. Organizations with the largest endowments (private universities, usually) have staff members whose only job is to manage the endowment and maximize its investment potential. Large endowments also open the potential for more sophisticated investment strategies and greater diversification, both of which tend to help large endowments perform better than small ones. You can stick your endowment in a money market account, but you’ll do better when you actively manage your money, or pay a professional to do it. That takes time, money, and commitment that nonprofits without endowments don’t have to worry about. Management and fundraising expenses can be huge.
Another concern to consider when you’re thinking about building an endowment goes back to that technical definition we started with. “Permanently restricted” is a phrase that should trouble managers who understand the value of staying flexible in an ever-changing environment. “Permanently” means forever beholden to the wishes of the donor. The donor cannot exert direct control over the money (or you), but you promise not to raid that money—even if you can no longer make budget. That’s the “restricted” part. An endowment-rich organization can be cash poor, with big assets and not enough additional money to run its programs. Just as too many suburban homeowners have hefty mortgage payments that leave them short on their food and clothing budget at the end of the month, too many nonprofits have hefty endowments that throw off money to keep on the lights but don’t relieve the need to raise funds to run programs at full speed. “Permanently restricted” can be a noose around the neck.
Without putting too fine a point on it, nonprofits with and without endowments are different animals. A big endowment can open up your financial options, but it might also limit your ability to change with the times. Some have suggested that privation feeds the nonprofit soul—organizations without endowments are more frugal, more innovative, and more responsive to their communities. All the quotes about the dangers of money apply here. As P.T. Barnum said, “Money is an excellent servant, but a terrible master.”
That brings us to the flip side of the endowment serving as a symbol of solidity and permanence in your community. While this reputation can inspire some donors to dedicate their contributions to your permanent future, it can cause others to shy away. When the local museum solicits my $100 for renovations, I might be inclined to think, “Why do they need my money? They have $50 million sitting in the bank that they aren’t using.” It’s hard for a well-endowed nonprofit to make the case to average donors that the organization still needs regular donations to maintain operations. If endowment income can’t keep pace with a decline in donations, it might end up being a drag on your operations rather than the cure-all you expected.
There are good reasons to have an endowment, and good reasons to not have one. The only way for a nonprofit to decide whether to pursue an endowment strategy is to fully educate your board of directors and have them hash it out. There is no obviously correct decision. Best wishes in making the one that is right for you.
Mark A. Hager is Director of the Center for Community and Business Research, a unit of the Institute for Economic Development at the University of Texas at San Antonio. You can reach him at:
Mark.Hager@utsa.edu.
Endnotes
1. This idea comes from reading Paul DiMaggio’s history of Boston cultural entrepreneurship. If you want a citation, e-mail the author.
2. Henry Hansmann has developed this argument in an article about university endowments.
Wait a minute—the first question should be, “What’s an endowment?” Unless you work under a rock, you probably have a common-sense understanding of the term, but if you are going to bandy it about with accountants or regulators you need to understand that the word has a technical meaning that doesn’t always square up with common usage.
In everyday use, people talk about an endowment as money in the bank that earns interest and dividends they can use for operations. But technically, the term refers only to that portion of your investment pot that is “permanently restricted” because the donors said that they do not want you to spend the money, or because you collected it with the understanding that it was a permanent investment reserve. Management or a board of directors can set aside additional reserves for the purpose of investment, but technically this money is not endowment—accountants sometimes call this “quasi-endowment.” Now, this distinction often doesn’t matter, especially if you’re just interested in how interest and dividends help your cash flow. But it does matter when you’re doing your accounting, and it also matters when a cash-strapped organization starts thinking about paying for operations from those cash reserves.
Should you build an endowment? Well, there is little debate that you should set aside money for a rainy day—a cash reserve that can help to smooth out the ups and downs in your operations. Just as investment advisors recommend that individuals have six months of emergency funds tucked away in a savings account, nonprofits should also strive to have cash on hand to hedge against uncertainty. This isn’t endowment, or even quasi-endowment—it’s just operating slack that you might need when, say, your donations take a hit one year, or you have an unexpected legal expense.
An endowment is established when you and your donors consciously build a reserve for the purpose of creating a financial bedrock for the organization. You can’t spend the principal unless the donor or a court says so, but the income from that principal is usually fair game. This investment income is golden, because you don’t have to earn or solicit it. Some gift agreements specify how interest income should be spent, but it typically comes with no strings attached. There is no magic figure at which your pot is large enough to call it an endowment, but it isn’t a serious asset unless it is roughly twice as large as a typical year’s operating expenses. If you’re only earning enough interest each year to pay for a board luncheon, you aren’t yet in the endowment game.
Organizations that are in the endowment game, however, reap the benefits of solidity and unrestricted income. An endowment can also be a very positive symbol that shows the community and potential donors that your organization is not a fly-by-night operation. It signals that yours is a flush organization that plans to be around for a very long time—this alone can bring large donations to your door.
So, then, why do donors give to endowments? We know that many donors cringe at the idea that their donations are going to anything besides delivery of services, so why would somebody give money that purposely is not going to be spent? Well, we should not overlook the generic “power of the ask”—endowment campaigns are visible community events that give donors a new reason to contribute to an organization that seems to be serious about planning for the future. But there are two other reasons about “the future” that motivate some donors to contribute to endowment.
The first is the idea of perpetuity. This is the same motivation that causes some patrons to create private foundations. In addition to whatever philanthropic motivations drive them, many people who spend a lifetime building an empire and a reputation for beneficence want that empire and reputation to live forever. The impulse for some part of us to live on forever isn’t a negative one—some say it is the same deeply seated psychological impulse that drives humans to have children. When we give contributions to operations, we get a warm glow from knowing that the money is going to be used soon to further a charitable mission. When we give contributions to endowment, we experience the glow of perpetuity. Our money will undergird a community institution long after we’re gone. That’s a powerful motivator, and one that has generated billions of dollars in investable assets in the nonprofit sector.
The second motivator is similar, and that’s the drive for elites to control community institutions.1 This doesn’t apply to the average donor, but there are a few people in every city who both have money and are prominent movers in the community. Transferring money and property across generations is one thing, but transferring standing in the community is another. Making big contributions to endowments of elite institutions (like museums or private schools) is one way families seek to transfer status to their children. Heirs can gain standing in community institutions based on the contributions their family has made to these institutions. If you are one of these institutions, this is another motivation you can tap into to generate endowment.
So, endowments are built through the union of an organizational commitment to building an investment reserve and a relationship with donors who believe that this is a good investment in the future, for their community, and for themselves. When the union is a healthy one, the result can be an endowment large enough to generate investment income that can be used for a variety of organizational and community purposes. Who wouldn’t want to be sitting on a big pot of money?
Before you run out and start cultivating your endowment, though, you should know that there’s a flip side. Endowments are not good for all organizations, and not everyone loves them. The biggest argument against endowments—and the one that comes up in almost every deliberation about whether to start one—is that endowments shortchange today’s charity for an unknown future.2 There are two related concerns here: one having to do with addressing current needs, and the other having to do with the declining value of money.
Current needs is the one that at least one of your board members will bring up, and is very possibly the reason why your board will vote not to have an endowment. “Why should we put a million dollars in a bank account when we can use that to serve a million more lunches?” Or buy a hundred thousand more books. Or facilitate a thousand more adoptions. Or renovate the façade of the theater. Many nonprofits are in dire need of more money, and most can at least think of an immediate way to use more. Therefore, it isn’t surprising that some people will value the use of contributions to meet current needs rather than build an endowment. And it isn’t just your board members who might feel this way—it might well also be your patrons, clients, elected officials, and local newspaper. Some people go so far as to say it’s not ethical to lock money in the bank when there are so many necessary ways to spend it now. Before you know it, you have bad press and declining donations—and you wish you’d never thought of raising an endowment.
The issue of the declining value of money has to do with the growth of the economy over time. When a charity spends my $100 contribution now, it gets $100 worth of good out of my money, whether that’s in operations, administration, or future fundraising. But just like $100 was worth more in 1960 than it is today, that $100 in 50 years (or even next year) will be worth less than it is today. Contributions to an endowment have less and less real dollar value over time. Endowments might keep up with inflation if they reinvest some of their earnings, but most nonprofits value their endowments because they get to spend those earnings. Consequently, nonprofit endowments face a never-ending battle against time.
There are a few other issues to consider, too. Endowment building is a strategic decision that requires management attention and a relationship with donors. As such, organizations need to be prepared to commit resources for managing both money and people. Organizations with the largest endowments (private universities, usually) have staff members whose only job is to manage the endowment and maximize its investment potential. Large endowments also open the potential for more sophisticated investment strategies and greater diversification, both of which tend to help large endowments perform better than small ones. You can stick your endowment in a money market account, but you’ll do better when you actively manage your money, or pay a professional to do it. That takes time, money, and commitment that nonprofits without endowments don’t have to worry about. Management and fundraising expenses can be huge.
Another concern to consider when you’re thinking about building an endowment goes back to that technical definition we started with. “Permanently restricted” is a phrase that should trouble managers who understand the value of staying flexible in an ever-changing environment. “Permanently” means forever beholden to the wishes of the donor. The donor cannot exert direct control over the money (or you), but you promise not to raid that money—even if you can no longer make budget. That’s the “restricted” part. An endowment-rich organization can be cash poor, with big assets and not enough additional money to run its programs. Just as too many suburban homeowners have hefty mortgage payments that leave them short on their food and clothing budget at the end of the month, too many nonprofits have hefty endowments that throw off money to keep on the lights but don’t relieve the need to raise funds to run programs at full speed. “Permanently restricted” can be a noose around the neck.
Without putting too fine a point on it, nonprofits with and without endowments are different animals. A big endowment can open up your financial options, but it might also limit your ability to change with the times. Some have suggested that privation feeds the nonprofit soul—organizations without endowments are more frugal, more innovative, and more responsive to their communities. All the quotes about the dangers of money apply here. As P.T. Barnum said, “Money is an excellent servant, but a terrible master.”
That brings us to the flip side of the endowment serving as a symbol of solidity and permanence in your community. While this reputation can inspire some donors to dedicate their contributions to your permanent future, it can cause others to shy away. When the local museum solicits my $100 for renovations, I might be inclined to think, “Why do they need my money? They have $50 million sitting in the bank that they aren’t using.” It’s hard for a well-endowed nonprofit to make the case to average donors that the organization still needs regular donations to maintain operations. If endowment income can’t keep pace with a decline in donations, it might end up being a drag on your operations rather than the cure-all you expected.
There are good reasons to have an endowment, and good reasons to not have one. The only way for a nonprofit to decide whether to pursue an endowment strategy is to fully educate your board of directors and have them hash it out. There is no obviously correct decision. Best wishes in making the one that is right for you.
Mark A. Hager is Director of the Center for Community and Business Research, a unit of the Institute for Economic Development at the University of Texas at San Antonio. You can reach him at:
Mark.Hager@utsa.edu.
Endnotes
1. This idea comes from reading Paul DiMaggio’s history of Boston cultural entrepreneurship. If you want a citation, e-mail the author.
2. Henry Hansmann has developed this argument in an article about university endowments.
How to Start a Nonprofit - Date Change from Mar. 29 to Mar. 30
Please join ESCH Consultant Will Dickey, J.D., for How to Start a Nonprofit on Friday, March 30, at 9:30 - 11:30 a.m. at the Leisure Learning Unlimited classroom, 2990 Richmond Avenue, 6th Floor.
Sunday, March 18, 2012
When Office Technology Overwhelms, Get Organized - from New York Times, Sunday, March 18, 2012
Stuart Isett for The New York Times
The 21st-century workplace extols open space, not hierarchy. At the Seattle base of the Bill & Melinda Gates Foundation, hallway extensions offer places for informal meetings or private thought.
By DAVID ALLEN
Published: March 17, 2012
Related
HOW do you think most workers would respond if you asked them, “Do you feel more productive now than you did several years ago?” I doubt that the answer would be a resounding yes. In fact, even as workplace technology and processes steadily improve, many professionals feel less productive than ever.
Stuart Isett for The New York Times
Various spaces for private work and meetings.
It may seem a paradox, but these very tools are undermining our ability to get work done. They are causing us to become paralyzed by the dizzying number of options that they spawn.
Is there a way out of this quandary? Yes, but it’s not going to come from the usual quarters. To be successful in the new world of work, we need to create a structure for capturing, clarifying and organizing all the forces that assail us; and to ensure time and space for thinking, reflecting and decision making.
Most professionals are still using their subjective, internal mental worlds to try to keep it all together, but that’s a poor way to navigate the new work environment. It results in unclear, distracted and disorganized thinking, and leaves frustration, stress and undermined self-confidence in its wake.
Workers need a set of best practices that is sorely lacking in the professional world. Without it, we are seeing a growing angst — even a sense of desperation — in the workplace, as more employees feel that there is no rest and no way out. (In fact, I wouldn’t be surprised to see resurging interest in Sartre’s books and Beckett’s plays as a result.)
These are the kinds of comments I hear in my work as a consultant:
• “I’m overwhelmed, and with all the changes going on here, it’s getting worse. There aren’t enough hours in the day to do my job.”
• “I have new responsibilities that demand creative and strategic thought, but I’m not getting to them.”
• “I have too many meetings to attend, and I can’t get any ‘real’ work done.”
• “I have too many e-mails, and, given day-to-day urgencies, the backlog keeps growing.”
• “I feel like I’m not giving the right amount of attention to what’s most important.”
And here’s a common kicker, for those willing to admit it:
“I just can’t keep going like this.”
One could argue that these kinds of complaints are as old as work itself, and that no matter how productive we are, we’ll always find something to grumble about. That’s human nature. But a closer examination of these grievances reveals that they all relate to a sense of suboptimal performance. The core message is, “I don’t feel good about what I’m not getting done.”
TO better understand the realities of the accelerated work world, it helps to remember how far we have come. Imagine if you didn’t have a spreadsheet on your computer: How much effort would you need to produce the computations you can now perform in minutes?
Fifty years ago, how many hours would you have spent wandering library stacks and poring over volumes of materials to find information you can now get in a few moments online?
When there was no next-day delivery, e-mail or Web conferencing, how much energy would you expend traveling to meetings to discuss issues, make decisions and produce results now accomplished in short order, with people all around the world?
Productivity gains have not been limited to technology and transportation. Over time, better understanding of business processes has allowed companies to accomplish more with less effort and resources, and with more focus on quality, creativity and innovation. And support for workers’ satisfaction continues to spread, in forms like flexible schedules, more comfortable office space, and a range of professional and personal development programs.
The problem is that better overall productivity in an organization may not translate into increased productivity for an individual worker.
Today, we really do live in a much cooler world in which to work, travel and communicate. So if we’re getting so much more bang for the buck, with this exponential leap forward in technology and support, why aren’t we reaping the benefits of productivity day to day as individuals?
Though one person may now be producing the previous results of three, she’s not being paid three times as much. That’s the whole point of companies using technology and other improvements: fewer people are now needed for the same results.
But the workers who remain also tend to have much more responsibility. And they can’t just comfort themselves with the notion that their companies are more efficient than they used to be, because all of their competitors have the same new tools, and are using them to gain any advantage they can.
Cranking out widgets is one thing; deciding which widgets need cranking first, and in what quantity, is quite another — especially if you are now charged with continually improving the system, or determining whether you should even be cranking out those widgets at all.
It can be a recipe for frustration, as employees feel overwhelmed by their companies’ very progress. And the problems and logistics of workers’ personal lives add yet another layer of complexity.
So, given all the obstacles, how do you find your way to a productive state — the feeling that you’re doing exactly what you should be doing, with a sense of relaxed and focused control? What’s needed is a system that creates space to think, to reflect, to review, to integrate and to connect dots.
As Dr. Nicolas von Rosty, head of executive development at Siemens, once told me, “You must be able to be present, not distracted, to be able to trust your inner wisdom and make quick decisions without others’ input or waiting for perfection.”
How do you find the space needed to do that? By integrating all the chaos of the workplace and staying focused on the most important things, as they relate to your goals, direction, values and desired outcomes. You must constantly recalibrate your resources to generate the best results, and to say “not now” to what’s less important.
WE are not born doing this. It’s a focus that must be learned. And its results won’t show up by themselves. You can, however, use a sequence of five events to optimize your focus and resources, whether you’re trying to get it together in your kitchen, your conversation, your contract, your company or your country.
• Capture everything that has your attention, in your work and your personal life, in writing. Maybe it’s your departmental budget, a meeting with the new boss, an overdue vacation, or just the need to buy new tires and a jar of mayonnaise. For the typical professional, it can take one to six hours to "empty the attic" of your head. It may seem daunting, but this exercise invariably leads to greater focus and control.
• Clarify what each item means to you. Decide what results you want and what actions — if any — are required. If you simply make a list and stop there, without putting the items in context, you’ll be stuck in the territory of compulsive list-making, which ultimately won’t relieve the pressure. What’s the next action when it comes to your budget? The next step in arranging your vacation? Applying this simple but rigorous model puts you in the driver’s seat; otherwise, your lists will hold your psyche hostage. And keep in mind that much progress can be made and stress relieved by applying the magic two-minute rule — that any action that can be finished in two minutes should be done in the moment.
• Organize reminders of your resulting to-do lists — for the e-mails you need to send, the phone calls you need to make, the meetings you need to arrange, the at-home tasks you need to complete. Park the inventory of all your projects in a convenient place.
• Regularly review and reflect on the whole inventory of your commitments and interests, and bring it up to date. As your needs change, what can move to the front burner, and what can go further back? Make these decisions while considering your overall principles, goals and accountabilities. Schedule a two-hour, weekly operational review, allowing space to clean up, catch up and do some reflective overseeing of the landscape, for all work and personal goals, commitments and activities.
• Finally, deploy your attention and resources appropriately.
Does our productivity really depend on this basic set of behaviors and thought processes? So it seems. Everyone is already half-trying to do all of this, all the time. But many people just haven’t identified the process, or applied it.
I have never seen anyone apply these practices, with some degree of commitment and application, and not find significant improvement in focus, control and results. The technology, the organizational goals, the quirkiness and turbulence of external realities — these become things to manage, not a hoped-for source of productivity itself.
I have found that most professionals take action based on whatever is the latest and loudest in their universe, as opposed to a making a conscious, intelligent choice springing from the model I’ve described. This day-to-day, minute-to-minute arena of “reaction versus pro-action” is where the scales tip to “productive” or “unproductive.”
ONE possible path to that feeling of control is to return to a make-it-or-move-it existence. Find work that requires little if any thinking, but merely reacts and responds to what presents itself. That’s a real option: I once met a senior vice president in a global pharmaceutical company who, after taking an early retirement package, became a duck at Disney World. In such a job, it was probably much easier to have a good day at work, and then leave it behind.
But most people won’t choose that path, partly because such jobs seldom pay what the figure-it-out-yourself ones do. And we need this second kind of job if we are to afford the children, education, hobbies, clothes and urban lifestyles whose options are themselves contributing to life’s overwhelming complexities.
And even if you tried to downgrade your work to something simpler, you’d probably bring along the itch to make it something more.
I’ve often made the point in my seminars that having a “bait shop in the Berkshires” is always an option for making life less stressful. But a client once told me that a friend of his had actually done that — by cashing out of Wall Street, going to the Berkshires and buying a fishing camp. When my client visited him, the guy was wrapped around his computer, on the Internet, trying to find the right baits to buy and sell, trying to figure out how to advertise his camp, and so on.
In other words, our attraction to a world of infinite possibility, information and complexity is here to stay. The challenge is how to participate productively in this new and turbulent world, and not be paralyzed by it.
Tuesday, March 13, 2012
Governance for Nonprofit Organizations - Quick Tips
Governance for Nonprofit Organizations
From Little Leagues to Big Universities
BOARD OF DIRECTORS/TRUSTEES:
PERSONAL QUALITIES OF EFFECTIVE BOARD MEMBERS
PERSONAL QUALITIES OF EFFECTIVE BOARD MEMBERS
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a. Fundamental Characteristics
Great boards don't just happen. It takes a lot of work to make a board effective. That work begins with selection of individual board members who, regardless of the type of organization, have certain fundamental characteristics:
- Vision and Leadership: the ability to see the big picture, and to help create and, if necessary, re-set strategy and policy to help the organization achieve its mission.
- Advocacy, Stewardship and Integrity: the ability to serve and promote the interests and goals of the organization without forgetting the interests of the public and the organization's intended beneficiaries.
- Knowledge: the willingness to become thoroughly familiar with the mission and how the organization actually carries out the mission day-to-day through its organizational structure and operations.
- Personal Commitment and Diligence: the willingness to take the necessary time and make the necessary effort to fulfill director responsibilities, including understanding strategic, financial and operational issues facing the organization, asking questions and following up as needed, engaging personally with the organization, whether through financial support, advocacy, networking, personal service, or other personal support activities, and staying current on sound governance principles and working to apply them to the organization.
- Collegiality: the ability to work well with others and to show respect for the ideas and views of fellow board members and staff; the understanding that boards operate as a body.
Beyond these fundamental characteristics, nonprofit boards typically seek directors with particular backgrounds or types of expertise, financial capacity, positions in the community, or access to key constituents or professionals that can be helpful to the organization. In recent years there is a trend for boards to seek individuals representing specific ethnic or minority groups, or women, so that the board has an ethnically or gender diverse membership. One effective way to help make sure that boards are sourcing directors who meet the needs of the organization is for the board, or nominating committee, to create and maintain written criteria for board membership focusing on key characteristics being sought and, in addition, to conduct an annual review of the strengths and weaknesses of the existing board so that future recruiting can focus on the organization's needs. (The Society website has samples of written criteria that have been developed by some nonprofit boards.)
Having a good understanding of a board's criteria for membership, and the specific reasons why the organization has selected you as a director, can go a long way in helping you determine whether service on a particular board is right for you. Don't be afraid to ask! This is particularly true with respect to financial commitment expectations, or for operating boards, anticipated time commitments. Understanding these matters at the outset can help keep embarrassing situations from arising as a result of mutual expectations not being met.
management. Sometimes the sheer size and diversity of members on a board may make communication and consensus difficult. Sometimes the number of "old guard" board members may inhibit participation by new members. Occasionally, lack of staff may limit time and attention that are given to directors or to board matters by management. While none of these issues may be enough to discourage you from joining the board of an organization you care about, understanding how things are can make it easier for you to understand the nature of the task facing the board in achieving good governance.
Similarly, understanding the board dynamic, how board members work together and with staff, is an important topic to explore in advance of joining a board. In the nonprofit world, founders of an organization may still be involved and cast a long shadow over board deliberations. Sometimes organizations may be in a period where there is a disconnect or distrust between the board and current
b. Personal Commitment
Your own ability to be effective as a director is another factor to take into account in considering board service. Expertise, reputation, financial donations and support may have played a role in your being asked to join a board. They alone do not make you a good director. Although there is no magic formula for being a good director, there are a number of actions and practices which are generally considered to represent excellence in board service, including the following:
- Understanding the mission of your organization and helping to keep it current and relevant.
- Becoming familiar with the organization's basic governance documents.
- Staying current on governance trends.
- Staying current on business and societal issues that may affect the operation or mission of the organization.
- Attending board and committee meetings regularly.
- Actively contributing to the work of the board and the organization.
- Reading board and committee materials in advance.
- Asking questions at meetings on issues you don't understand.
- Offering suggestions and comments in a positive manner.
- Avoiding micromanaging or nit-picking.
- Being respectful of the management team and other directors.
- Being collegial; refraining from dominating meetings or personalizing debate.
- Supporting the chair in efforts to keep meetings moving.
- Keeping questions and comments relevant.
- Knowing key staff and their roles, but refraining from contacting lower level staff without advising the executive director.
- Meeting periodically with the executive director.
- Getting to know the other board members.
- Supporting the organization financially.
- Attending functions of the organization in the community.
- Helping raise funds from others for the organization.
- Being an advocate for the organization in your community.
- Engaging others in the work of the organization.
- Keeping alert for warning signs of potential trouble-disaffected directors, arrogant or ineffectual executive director, sloppy reports, lack of forward momentum, poor accounting, shortage of funds, etc.
- When you have concerns about the organization or board or staff, raising them with sensitivity to the appropriate person (board or committee chair or executive director) and working to correct the problems.
- Knowing when it's time for you to rotate off the board in order to help keep the board fresh and viable.
Comparing your performance against these actions and practices will give you a good idea of whether the organization you serve will consider you a valued and effective director.
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