Naming Rites

It’s not unusual for people to change their names. Last names change with marriage, divorce, career changes, whim, and the urge to assimilate. My maternal grandparents anglicized their surname “Medvedsky” to “Meadow” within a few years of arrival in America. (Family legend has it that my Great-Uncle Harry, who reputedly was a low-level operative in the New Jersey mob, insisted on the name change. His siblings wisely and swiftly complied.) First names change as well, with evolving tastes and preferences. A quick visit to the local magistrate is usually all it takes for a new identity.

But when nonprofits want to change the name on a building, it’s a much more public – and complicated – exercise.

Which brings us to Lincoln Center, the renowned performing arts complex in New York City. Lincoln Center is undertaking a gut reconstruction of Avery Fisher Hall, the New York Philharmonic’s home for the last four decades. The construction costs are projected to be $500 million. The folks at Lincoln Center didn’t think they could raise that much cash without a significant leadership gift, and that gift, they felt, would require naming the reconstructed hall after the donor. The opportunity to get your name on one of the preeminent performing arts venues in New York, the thinking went, would be worth a bundle.

But there was a catch. Even though this is essentially going to be a new performance hall, Lincoln Center had to deal with the fact that Avery Fisher’s name was already attached to the space. And, though Avery Fisher himself had long passed from the scene, his heirs have not – and it turns out that they are a litigious bunch who needed to be placated. And so, to induce the family to agree to the name change, Lincoln Center slipped Avery’s three children a total of $15 million – or $4.5 million more than their dad had donated to begin with in 1973. (In the category of deep ironies, the story goes that Avery Fisher, by all accounts a very modest man, had to be convinced to allow the hall to be named after him in 1973. He apparently thought the naming ritual was unnecessary and meaningless.)

Once Lincoln Center paid off the Fisher family, it offered the naming rights to the highest bidder. It only took a few months to come up with a winner: Hollywood mogul David Geffen, whose name will now adorn the hall in exchange for a $100 million gift.

Like tabloid gossip about rich families (divorce! adultery! drug use! tax evasion! cosmetic surgery!), whose problems are just like ours, only with much more money and vastly more public scrutiny, it’s fun to read about the rich and famous of the philanthropic world. But there are serious lessons from the Lincoln Center story that can be helpful to those of us in the less-elite parts of the philanthropic world:

1. It’s perfectly fine to name buildings and parts of buildings after major donors – but make sure everyone knows the rules. I deeply admire Pablo Eisenberg, the conscience of the philanthropic world, but he went a little overboard in a recent fulmination against naming buildings after billionaires. Dispensing honors in exchange for gifts is a tried-and-true way to attract funding for capital projects. But everyone should be clear up front if the name is perpetual or only for a limited time period. David Koch, the oil-and-gas billionaire and conservative political mega-donor, allowed a 50-year limit on his name adorning a nearby hall at Lincoln Center. Geffen Hall, on the other hand, is perpetual. If Lincoln Center wants to do another gut rehab in sixty years and tries to summon up another named donor, they’ll have some legal issues on their hands.
2. Make sure the price is right. Geffen paid $100 million for the naming rights to the hall, which is a lot of money. But let’s not forget that Lincoln Center had already given $15 million as an inducement to the Fisher family. That’s a net of $85 million, or only 17% of the total construction cost. That’s too little. I’d think that 40%, or even 50% of the total cost would be more appropriate. In a town with so much money, I think Lincoln Center sold the name too cheaply. 
3. Consider whether the honoree will attract or repel subsequent donors. If the building is named after someone, and that name goes public at an early stage, other donors might want to help honor that person, or they might run away in horror, or something in between. I don’t think Geffen is a controversial character – but in raising money for Geffen Hall, it would be helpful if potential donors admired the guy.
4. Consider your response if the honoree turns out to be a public embarrassment. Remember Dennis Koslowski, the disgraced CEO of Tyco? Koslowski, recently released from jail, became a household name a decade ago for corporate excess and corruption. That created a sticky situation for Middlebury College, which had recently named its campus childcare center after Koslowski. It’s never simple to take a name off a building – though it’s vastly easier when the donor goes to jail and it’s proven that the money that bought the honor was ill-gotten. Middlebury took scrapers to the Koslowski name and hasn’t looked back.

 

It’s more difficult when there are well-known and credible accusations of wrongdoing, but no criminal convictions. For example, the serial rape accusations swirling around Bill Cosby have caused challenges for the many colleges and universities he had supported, and on whose boards he served. Cosby and his wife had donated $20 million to Spellman College in Atlanta to establish an endowed professorship and program for the humanities. Spellman “suspended” the program, but didn’t indicate that they would return the money or strip the name off the endowment. Everything is in limbo. Spellman also hasn’t said if Cosby’s name would remain on their humanities building.

Not a simple situation. As my grandmother, born Sarah Schulman, then Sarah Medvedsky, and finally Sarah Meadow would have said: “Oy!” And stay tuned in future posts for more thoughts on philanthropic naming, and un-naming.

Copyright Alan Cantor 2015. All rights reserved.

Donor-Advised Funds: By the Numbers

Last week I participated in a terrific debate about donor-advised funds with my good friend Stuart Comstock-Gay, the president of the Vermont Community Foundation. (Thank you, Planned Giving Council of New Hampshire and Vermont, for inviting us!)

Stu and I found a lot of common ground, as well as several areas where we cordially agreed to disagree. Stu made the case for donor-advised funds, saying that their flexibility and low entry point encourage charitable giving and democratize philanthropy — private foundations for the average person. He also emphasized their efficiency. I brought out my concerns (familiar to readers of this column) that donor-advised funds were attracting money that otherwise would be going to actual charities. I also pointed out that money goes into donor-advised funds more readily than it comes out, and I described the unethical financial incentives that are driving the growth at commercial gift funds such as Fidelity.

In preparing for the debate I came up with some numbers that I think illustrate the challenges posed by donor-advised funds. (Because we were meeting right across the river from Dartmouth College, by far the largest fundraising operation in Northern New England, I make references to Dartmouth in a few places.)

The numbers:

2 Ranking in 2012 (the most recent year studied) of Fidelity Charitable in the Philanthropy 400, the Chronicle of Philanthropy’s listing of American nonprofits that have raised the most money.

89% Increase in donations to Fidelity Charitable from 2011 to 2012.

13 and 18 Ranking in the 2012 Philanthropy 400 of Vanguard Charitable Endowment and Schwab Charitable, the second- and third-largest commercial donor-advised funds.

21 and 24 Ranking in the 2012 Philanthropy 400, respectively, of Harvard and Yale Universities.

105% Increase in donations to donor-advised funds between 2009 and 2012.

1:17 Ratio between what Dartmouth College raised in 2012 ($194 million) and what Fidelity Charitable raised ($3.2 billion).

1:3 Approximate ratio of the Dartmouth College endowment after 245 years ($3.7 billion) to the assets of Fidelity Charitable after 23 years ($10 billion).

201,631 Number of donor-advised funds in the U.S. at the end of 2012.

$13.7 billion Total dollars donated to donor-advised funds in 2012.

$9.4 billion Total dollars donated to all environmental, conservation, and animal rights organizations combined in 2012, or $4.2 billion less than what was given to donor-advised funds.

$45.3 billion Total dollars held in donor-advised funds at the end of 2012.

1007 Number of entities sponsoring donor-advised funds, according to the National Philanthropic Trust, including 47 financial institutions.

$75 million Estimated fees earned by Fidelity Investments on investments in their mutual funds from Fidelity Charitable (based on .75% average fee on $10 billion total assets).

70% Percentage of donations that Fidelity Charitable says involve the donors’ financial advisors (that is, where the donors’ brokers are being paid a commission for advising on the investments of the funds held there).

100% Percentage of donations that involve providing commissions or fees to donors’ financial advisors at the American Endowment Foundation, a commercial gift fund based in Hudson, Ohio.

102% Increase in donations to the American Endowment Foundation between 2011 and 2012 ($62.5 million to $126.7 million).

16% Average 2012 pay-out from all donor-advised funds.

16% What the annual grants paid by donor-advised funds would be if 20% of the donors, by fund value, paid out 80% of their funds in grants, and the other 80% of donors paid out absolutely nothing.

0% Amount that donor-advisors are required by federal law to grant out to charity in a particular year… or ever.

1 Minimum number of grants that Schwab Charitable requires its donor-advisors to recommend in a five-year period.

$50 Minimum grant size at Schwab Charitable.

Copyright Alan Cantor 2014. All rights reserved.

 

Cheap Easels

If you want to understand the nonprofit world’s approach to spending money, take a look at their easels.

Every small nonprofit owns metal easels. They use these easels a dozen times a year to hold big newsprint pads for strategic planning retreats, staff meetings, and board presentations, and to hold up posters at public events. Virtually every organization has a metal easel or two stuck in closets and car trunks and basements. Even in an era of PowerPoint presentations and digital projectors (not to mention white boards), nonprofits continue to own and use easels. For some reason, easels are a tough habit to break.

And those nonprofit easels are uniformly lousy.

During my thirty-year nonprofit career I constantly found myself dealing with rickety and malfunctioning easels. Whenever there was a meeting where we needed an easel, we had to cope with missing parts, broken legs, and malfunctioning clips. For decades, as I searched through car trunks for missing parts, or as I tried to make the bent, spindly legs stay in a locked position (thank you, duct tape!), I thought how strange it was that nobody had figured out how to build a decent, sturdy, functioning easel.

Then I started my own consulting business. I went to the nearby Staples to pick up office supplies: a few reams of copy paper, clips, pens, writing pads, and, yes, an easel.
There on a back shelf I saw my nemesis – the kind of flimsy number that had been torturing me for decades. It cost $35. And next to it was a vastly better stand, a kind I had never seen before, made of thicker and sturdier aluminum – for all of $59. I bought the better stand, and it’s never given me a moment’s worry since. In fact, I have every expectation that the stand I bought will outlive me. (It’s already vastly sturdier than I. Ask my knee surgeon.) But every nonprofit I know continues to buy the rickety easels. The default in the nonprofit world is to go cheap.

Some people worry about nonprofit waste, and there is some of that. But more often nonprofits are frugal to a fault, with flimsy easels, yes, but, far worse, antiquated technology, cramped and unproductive office space, and underpaid and undertrained staff members. It is the rare nonprofit that recognizes how economically counterproductive its frugality can be. Buying the cheap easels means, first of all, that its productivity and morale drop as staff members have to spend extra time dealing with substandard and inefficient equipment. Second, by having to buy two or three easels over the years, the nonprofit spends more than if it had simply bought a good easel to begin with. It’s hard to imagine companies in the for-profit world consciously choosing to buy equipment that is so patently defective unless they had absolutely no other choice.

And yet nonprofits continue to be cheap to a fault. I think that’s partly because they don’t want to be seen as spendthrift, partly because they have developed a culture of frugality, but mostly because every nonprofit is obsessed with and held captive by its annual operating budget. And that’s because in the nonprofit world, nothing is considered more important than a balanced operating budget.

I understand why this focus came about: In a sector where impact is hard to measure, and where there are no profits and losses or shareholder dividends or pie charts reporting trends in market share, the simplest and most obvious measure of good management is balancing the budget. Funders and the public at large can forgive many sins, so long as the annual budget is in the black.

And so whereas a for-profit entity would be inclined to invest in high-quality supplies (and staff, and training, and offices) for the long-term benefit of the company, and whereas a start-up venture would budget for short-term losses as a prerequisite to eventual profitability, the nonprofit veers toward perpetual, annual, short-sighted frugality. Nonprofits inevitably opt for the cheap, and they are reluctant to spend freely until budgetary balance is assured in the final weeks of the fiscal year.

This is unfortunate, but understandable. The penalties for not balancing the budget, even under extenuating circumstances, are significant. Whispers about mismanagement rise up. Funders pull out. And with the withdrawal of support, what might have been a one-year financial blip can become a structural deficit.

In other words, a year in the red prompts donor flight, which almost ensures more future deficits. And so nonprofits do all they can to stay in the black, each and every year, even if this frequently leads to decisions that are not in the nonprofit’s best long-term interests.

It’s time for funders and ratings agencies to recognize that an occasional deficit – if caused by a one-time event, or even as part of a planned strategy for investing in infrastructure – is not necessarily a sign of poor management. It may even be an indication that the organization is looking beyond the end of the year. It’s my hope that funders take a more nuanced and enlightened view of the annual budget. And if there’s an organization that should be run out of business, it’s not the nonprofit that occasionally runs a deficit, but rather the office supply company that makes those god-awful easels.

Copyright Alan Cantor 2014. All rights reserved.

 

Foundering

“So what’s your boss like?” I asked a friend, who had recently taken a position at a nonprofit.

“Well, you know. He’s a founder.”

My friend then listed the adjectives describing his boss: “Creative. Dynamic. Charismatic. Visionary. Brilliant. Funny. Inspiring.” Also, “Meddling. Obstinate. Egotistical. Defensive. Controlling. Annoying. Demanding. Distracted.”

Some of my best friends are founders. If you’re one of them, I promise you that this is not about you in particular. Maybe not even you in general. I can also say that I have deep respect and sympathy for founders. Without founders, we wouldn’t have the dynamism and creativity and impact that characterize the nonprofit world.

But it’s the rare founder who can transition easily into becoming a good manager. It’s a cliché to point out the contrasting personalities needed to be a successful entrepreneur-founder and to be the manager of a mature organization – but like a lot of clichés, it’s based on a core of truth. Organizations often outgrow the founder’s managerial talents.

That said, I know some founders who have defied the odds and remain effective after two decades or more at the helm. Drawing lessons from their example, here are some hints for our founder friends to help them be the best possible leaders for the organizations they’ve created:

1)     Remember that you are not the organization, and the organization is not you. A little emotional distance is a healthy thing. You may be the personification of the cause to the public, and that can be very helpful in some ways, especially for raising money. But the organization is no longer a start-up, and it is no longer a one-person show. Remember to credit your staff. Share the decision-making. Don’t interpret critiques of the organization as personal attacks. Remind yourself that changing established practices is not a rejection of you, but simply a way of improving how business gets done.

2)     Try, try, try not to micromanage. At one point in the organization’s history you did it all. You now lead a different, larger, more sophisticated organization. Don’t forget that times and technology have changed. Don’t forget that you have skilled staff members in place who crave a sense of ownership. Remember that if you second-guess the staff they will feel undermined and belittled. And don’t hold the purse-strings too tightly: let people manage their budgets without having to run every expenditure by you. (You’re the CEO, not Mom or Dad.)

3)     Realize that the overall success of the organization under your leadership does not mean that you’re equally good at everything you do. One real challenge for you and other founders is to get a clear reading on your strengths and weaknesses. You have been in charge virtually your whole working life, and it’s not easy for staff to tell you when you’ve screwed up, or to suggest changes. Obviously, the board should be doing a thorough annual evaluation, but boards tend to treat founders with a reverence that weakens the evaluation process. One founder friend of mine, aware of how the board defers to him, recommends that his organization hire a consultant every few years to do a complete 360-degree evaluation of his performance. I think that’s a great idea – and I’m not only saying that because, well, I’m a consultant.

As I have written before, no leader is good at everything. The CEO who is brilliant at making a pitch to a corporate funder may not be as effective at encouraging a young and self-doubting staff member. A leader who can formulate the big-picture vision may underestimate the challenges that will arise in the execution. An executive director who tirelessly works to promote fairness and opportunity for the organization’s clients may be the same person who plays favorites in the office. But it can be very difficult for the the CEO to get a fix on her own strengths and weaknesses. This makes it particularly important for the CEO to seek candid feedback and to do some honest self-analysis. Focus on those responsibilities to which you bring unique skills. And keep in mind that simply because you enjoy doing something or are very experienced in doing something doesn’t mean you’re particularly good at it.

4)     Don’t forget that you are in a powerful position. Thomas A. McLaughlin has written about the remarkable power of a nonprofit CEO within an organization – greater, he claims, than in any workplace other than a sole proprietorship. McLaughlin asserts that a nonprofit CEO is more powerful within his organization than, say, the CEO of General Motors is within hers. In corporate America there is a paid board of directors with a vested interest in the success of the company. (Board members are shareholders, after all.) The corporate board can provide a hefty counterweight to the CEO, whose power is also limited by the harsh reality of quarterly financial reports, daily share prices, public scrutiny, and the marketplace. A nonprofit CEO, on the other hand, reports to a volunteer board that is highly unlikely to look for trouble, and the measures of success are less clear. Most of the information a nonprofit board receives actually comes from the CEO. You as the nonprofit CEO have more or less free rein. Don’t abuse it. Don’t lord over the staff. Hold yourself to higher standards than your board does.

* * * * *

A founding CEO should bring the same degree of scrutiny, creativity, and vision to looking at his organization — and his place in it — as he did many years before in creating the place. Founders need to work consciously not to undermine the success of the organizations they love. Those who fail to make the necessary adjustments will see their organizations falter and their own reputations tarnished, and they run the risk of being remembered with the saddest and most preventable of judgments: “They just stuck around a little too long.”

Copyright Alan Cantor 2014. All rights reserved.

Identity Laundering

Some charitable gifts are made with open hearts and great altruism. Other charitable gifts are made largely to curry favor or gain attention. And then there are gifts that use charity purely to further the donors’ political and financial interests. Here’s a story about how a pair of famous billionaire brothers have manipulated charitable giving laws for personal and political ends – all while taking advantage of technicalities to cover their tracks and protect their pet charities.

First, some background.

As I have written before, paradoxically enough nearly everything that goes on at a private foundation is open to the public, while much of what goes on at a public charity can be kept private. You see, a single family can control everything that goes on in a private foundation: investments, grants, the works. Because of the family’s absolute control, federal law requires equally absolute transparency. Each grant, each board member’s name and address, and every dollar in honoraria paid to board members are part of the public record. The notion is: the family may have complete control, but in return they have to show us every little detail of their activities.

Meanwhile, activities of public charities are subject to less careful examination. The notion is that the board of directors serves as the public’s eye to ensure proper conduct, and consequently there doesn’t need to be as much scrutiny. And, as you may know, organizations that sponsor donor-advised funds – historically, community foundations, but more recently “charitable gift funds” at commercial entities like Fidelity and Schwab – are considered public charities. Consequently, not only can organizations that sponsor donor-advised funds keep their donor lists anonymous, but they do not have to disclose the identity of which donors have recommended particular grants.

Another bit of background: In order to be considered a public charity, a nonprofit needs to demonstrate that it gets broad support from many donors. If all the money comes from only one or two families, then the I.R.S. will declare that the organization has failed the “public support test” and is, in actuality, a private foundation. One reason that matters is that the rules governing charitable deductions for contributions to private foundations are less generous in several ways than gifts to public charities. Also, as we have seen, private foundations are subject to greater scrutiny.

Enter, stage right, the Koch brothers. To those with progressive political views, and to those who are concerned about the power of money to influence politics, David and Charles Koch are ranking villains in America today. Industrialist owners of the second-largest privately held company in the U.S., with annual revenues of $100 billion, the Kochs are both other-worldly rich (they are considered the wealthiest siblings in the world) and seemingly unconcerned about how their political opponents view them. They have spent tens of millions of dollars for ads that attack Democrats, moderate Republicans, and public policy positions with which they disagree.

The Koch brothers are not shy about their political machinations, but occasionally even they can use a little bit of cover. And, according to some good journalistic work by Paul Abowd, they are getting that cover thanks to a donor-advised fund sponsor called Donors Trust.

Donors Trust takes in money from wealthy donors and distributes the funds out to politically conservative causes, such as the controversial American Legislative Exchange Council or, as recently described in The Philadelphia Inquirer, “research institutions” like the Heartland Institute that work to debunk climate change theories. The Koch brothers, whose industrial fortune includes extensive holdings in the petroleum industry, find all this talk about climate change to be bad for business, but they are savvy enough to know that they don’t want to be tied in an obvious way to organizations that publish reports arguing against the widely accepted scientific truths on global warming. So the Kochs make contributions to Donors Trust, something we can track because their private foundations list Donors Trust as a grantee, and then Donors Trust makes the distributions to the controversial organizations without revealing which donors are authorizing the grants. The Kochs are not listed as donors, though their money – filtered through Donors Trust – is almost surely going to these causes.

Meanwhile the Heartland Institute, the outfit that works to disprove climate change, benefits by getting their funding from a donor-advised fund. If they were explicitly to get most of their funds from one or both of the Messrs. Koch, then they could lose their public charity status. But no – they are getting their funding from Donors Trust, a public charity that itself has some 200 donors, and so that grant is considered as coming from the public at large and not from one or two billionaires in particular. As U.S. Senator Sheldon Whitehouse (R.I.) describes it, this is an “identity-laundering scheme.”

I have written time and time again about why the rise of donor-advised funds is a challenge to the charitable world. My critique has focused on how there needs to be a requirement that the funds be distributed to actual charities over a period of time. I have also noted the distorting effect that Wall Street commissions and fees are creating: there is big money to be made in donor-advised funds, and financial incentives in the form of fees and commissions are driving the huge growth in donor-advised funds and diverting money from real nonprofits.

So now let me add to my list of what’s wrong with donor-advised funds: the lack of transparency. The Koch brothers and their ilk are making tax-deductible gifts to “charitable” organizations making dubious and clearly politically-motivated claims, and these transactions are aided and abetted by the virtually unregulated nature of donor-advised funds. Can a fair-minded person honestly say that this scheming is furthering the public interests of the people of the United States? And could someone explain why you and I are subsidizing these activities through charitable tax deductions?

Copyright Alan Cantor 2014. All rights reserved.

Searching for Mr. or Ms. Right

I have a friend who works as the second-in-command at a very small nonprofit. Her longtime and very effective executive director is retiring, and the board is searching for a replacement. I asked my friend if she was nervous about the transition, and she expressed not the slightest worry. She has faith in the board and feels confident that things will work out well.

If I were in my friend’s shoes, I’d be much less calm and trusting. Even the best board makes mistakes in executive searches. Interviews and references and resumes might give every indication of a good match – and then the reality turns out to be very different.

It strikes me that disastrous picks often occur when search committees focus on credentials, rather than on the core issues of maturity, intelligence, and character. This is not to say that credentials don’t matter – obviously, they do – but degrees and experience are not necessarily an indicator of the skills and attitude required in a leader.

Leaders who lack maturity and confidence tend to make it all about themselves. They dictate rather than listen; they talk down to staff, rather than seeking input; and they set goals and create systems of external rewards rather than inspiring the staff to motivate themselves.They hog the glory. They like to surround themselves with yes-people. Good people flee.

In other cases, a leader lacking maturity and confidence will try to please everyone, will equivocate, will refuse to make the hard decision. Here too, the organization fails. I am struck by how quickly bad leaders can ruin a healthy organizational culture. It doesn’t take more than a few weeks. A few days, even.

Of course, new leadership can have an equally dramatic positive effect. I know of a small public library where a dictatorial and erratic director was succeeded by a sensitive, thoughtful, and empowering director. I happened to be in the building one day about six weeks into the new director’s term, when an elderly man came in. After conversing for a minute or two with the staffer at the front desk, he said. “My! This is a friendlier place now! Things have really changed! I love it!” What’s notable about the story is that this man who could sense instantly that it was a happier, better place was blind.

I’m not usually one to recommend TED Talks, but Dan Pink’s presentation on motivation in the workplace is a good one. Pink gives evidence to show that the greatest motivator for workforce productivity and satisfaction is providing employees with a sense of autonomy, mastery, and purpose.  Not an end-of-year bonus or a birthday party or a special parking spot or permission to dress casually on Fridays. No gimmicks required. It mostly boils down to autonomy, mastery, and purpose. Or, in a word, respect.

This resonates with my experience. When I was a young executive director, I was an ineffective micromanager. I remember the relief (mine, and everyone else’s) when I evolved into a more respectful and empowering boss. This transformation came about after what was essentially an intervention from the people I supervised – and I’m grateful to them to this day for having the courage to tell me the truth about my disastrous management style. I have also experienced the highs and lows of being led by others: the excitement of working for people who trusted and supported me and let me call the shots, and the dispiriting feeling of being second-guessed and disrespected and patronized and hobbled.

I have yet to meet anyone in a nonprofit leadership position who is not well-intentioned. The question is, does a particular person have the maturity and character and intelligence to lead, trust, and encourage? Or will that person feel threatened by competence and initiative?

How does a search committee avoid making the wrong choice? Well, there’s no sure way. But let’s say the candidate spends a lot of time talking about how she shook up her last place of employment, how she was a force for change, how she cleared out the dead wood. A lot of people may see strength and moxie in that kind of attitude, but in fact it may be a warning sign, depending on whether that last place truly needed to be changed, and whether there was dead wood that in fact needed clearing. Another tip may be the language she uses. Possessive pronouns can be so revealing. If I hear someone referring to “my staff,” as opposed to “our team,” I run for cover.

But there’s honestly no way to know for sure. And so it’s important for the search committee to explain in the interview and hiring process that the organization values collaboration, staff participation in decision-making, and a free exchange of ideas. The search committee should make clear that there is an annual executive review process, and it should emphasize that as part of the review the board will seek the staff’s input. This clarity may help bring out the best in the new executive, and it sets up the board to act upon problems if they arise.

I wish my friend the very best. Let’s hope she’ll land a great boss, one who respects her institutional knowledge, who works together with her and the rest of the staff to understand the organization and to plan the best new path. And if not – well, the penalty for a search committee choosing the wrong person… is having to do it all over again. That’s a good bit of incentive to get it right the first time.

Copyright Alan Cantor 2014. All rights reserved.

Miami Vice

My father-in-law, Joe, alerted me to a peculiar ad in the business section of the Sunday New York Times. Under the listing “Business Franchise Opportunities” were the words, “Charity Director Millionaire,” followed by a South Florida phone number. “This sounds pretty fishy,” Joe said. I agreed. And so I decided to pick up the phone and go fishing.

“Hello?” says the husky, male voice on the other end. No name. Just, “Hello?” It sounds like a personal cell phone.

“Yeah,” I say. “I’m calling about the ad in the New York Times. I’m wondering: How’s that all work?”

“Hold on!” And I can hear the guy shuffle off to a more private space.

He never does tell me his name, and I never tell him mine. He doesn’t ask me where I’m calling from or why I’m interested.

He starts right in with his pitch. “So for years I worked for a company that raised money for charity,” he says. “We did alright. More than alright. $60,000, $80,000 a week. Now we kept a lot of it and passed the rest on. I mean, we weren’t one of those outfits that kept 98% or anything! It was all on the up-and-up!

“So then I tell myself, ‘Why raise the money for another guy’s charity when I can raise it for my own?’ So I started this charity. It’s for handicapped kids. And I’m looking for people to run the franchise in different cities.”

Franchise?! I’m repelled. But I’m curious. “How’s it work?” I ask.

“So let’s say you become one of my people. You go out and get different businesses to contribute $5,000 each. In exchange they get a charitable deduction, plus I’ll shoot a t.v. ad for them – you see, I also have a video business. That in and of itself is a great deal for them, right? And then, well, depending on the volume, you personally keep 30% or 35% of what you raise for yourself. I can show you the numbers. I did this in Canada, and here, too – I have dual citizenship. You can make real money. I’m not kidding you.”

I can’t quite follow it all. I don’t really want to. I say, “So, the charity you’re creating: What’s it do?”

Short pause. “Well, we send sick kids to Disney World. Get them wheelchairs. That kind of stuff.”

He adds, “If you’re interested, the next step is to come down and meet me in Miami. We’d get to know each other. And I can set you up with my lawyer, and he’ll explain how this is all legal.” Yeah. All on the up-and-up, fella. You’re a great humanitarian.

End of call. I feel like I need a shower.

If this guy were the only one, it would be no big deal. But there are thousands of charity scam artists out there. Ken Stern, in his book With Charity for All, talks about “charities” that are nothing more than a P.O. Box, a phone bank, and names liberally littered with words like “children,” “cancer,” “veterans,” and “firefighter.”

You’ve probably fielded calls at home from these outfits. How do they get charitable status to begin with? Well, according to Stern, the I.R.S.’s Tax-Exempt Division is woefully understaffed. They aren’t able to do much more than give a sniff to new charitable entities – and so the I.R.S. approves over 99.5% of applications. And how many corrupt pseudo-charities do they subsequently shut down? Only about ten a year, nationally. In other words, it’s easy to get charitable status, and once you do, it’s almost impossible to lose it.

There are state charitable trust regulators as well. We have a very good unit in my state of New Hampshire, but I know that in some states there’s not much enforcement at all. And I’m pretty sure that none of these offices is deep with staff.

My would-be business partner in Miami and his ilk fleece donors and taxpayers (who subsidize their scams through the charitable tax deduction) and cast a dark shadow over the entire nonprofit sector. So what’s to be done? First, we should all do our best to turn the scoundrels in. In this case I did call the I.R.S. An agent there provided me with a form to send in, but without Mr. Miami’s name and address, I really couldn’t fill it out. Next time I’m in that situation, I will press for more information. And I urge you to do the same. We should also lobby for the I.R.S. and state regulators to get the resources they need to rein in a system that’s out of control.

Second, let’s publicly acknowledge that there are some people purporting to run charities who are bad guys, pure and simple.  We shouldn’t ignore the specter of immoral and corrupt individuals who are using the charitable tax code for personal benefit. They’re a rotten bunch trying to scam the system. My sense is that a lot of folks – certainly the ones who keep sending money in response to shady phone solicitations – have no idea that some charities are rackets. The exploited donors need to understand what’s going on.

At the same time, the public needs to know that real nonprofits are very different: driven by mission and doing good work. Largely because of the scam artists, faith in the nonprofit sector has dropped in the last decade. It’s time to rebuild the sector’s image.

And if you’re wondering: no – I’m not going to Miami. Though given the weather this winter, it’s pretty tempting.

Copyright Alan Cantor 2014. All rights reserved.

Waiting. And Waiting.

There’s an epidemic of deferred philanthropy in this country.

What do I mean? Let’s imagine that your house is burning. Firefighters arrive on the scene, and they offer you three choices.

The first option is for the firefighters to do all that they can, now, to save your home.

The second option is for them to use only five percent of their available water and equipment and personnel to fight the fire. They assure you that this will allow them to shepherd their resources so that they will be able to direct a similarly insufficient effort toward future house fires a year from now, a decade from now, fifty years from now.

The third option is for the firefighters to leave the scene without ever turning on a hose – while assuring you that, at some point in the as-yet-undetermined future, they will have the resources they’ll need to put out a fire.

Obviously, you would choose option one. But when it comes to the response of charitable donors to the critical problems facing society, their answer, maddeningly enough, is very often options two and three.

Option two is to create an endowment or a foundation, which will invest the funds and parcel out money a few dollars at a time, with a focus not on solving problems and meeting needs now, but the preservation of the charitable principal to help meet that mission in the future. And option three is creating a donor-advised fund, where donors get a full charitable tax deduction when they put money in – but where there’s no requirement that the funds ever be distributed for charitable purpose.

Let me explain why, from my view, this is a problem.

I would argue – and I frequently have – that society has a compelling interest to solve immediate problems. In areas of basic human needs, we should invest in lives before they are irreversibly ruined by hunger, disease, and ignorance. Feeding a hungry child today, in the simplest example, so that she can have healthy mental and physical development is not only the compassionate thing to do, but it’s also wise public policy. That child needs to eat so she can develop into a productive citizen, someone who will work hard, pay her taxes, and, yes, raise healthy, well-fed children of her own.

Yet we defer. We lock up the funds for some future distribution. Why?

First, I think many of us conflate charitable planning with our individual financial planning. We get advice from childhood on how to manage our personal financial resources. We are all encouraged to save. (Not all of us do it, but we know we should.) How much does each of us need for retirement? As much as possible! In our personal planning, piling the resources up for the future is absolutely the right thing to do. We save our money for when we’re old and in need of nursing care. That all makes sense.

The problem is that we then rather thoughtlessly (I mean that term literally: people simply don’t think about it) apply those principles to our charitable giving, even if it means not feeding people who are hungry today. We build charitable funds for a rainy day. And we overlook the unpleasant truth that for the people who need our help now, that rainy day… is today.

Second, we are suckers for the notion of immortality. We grow up hearing about charitable foundations, we remember the endowed chairs at our alma maters, we see the names of great philanthropists on buildings, and we fall prey to the seductive notion of leaving something behind that will live on. We think that if we create an endowment or a foundation with our name on it, we will long be remembered – even though that works vastly better if your name happens to be Ford or Rockefeller or Gates, and your fortune is measured in the billions, not the thousands.

And third: there’s money to be made when charitable funds are parked in these accounts. Money that is spent on food for the hungry is quickly gone – and, I would argue, gone to the best possible cause. But money socked into a donor-advised fund or foundation or endowment can be managed indefinitely, and at a handsome fee, by your friendly Wall Street investment firm. And so there is an economic gravitational pull that encourages donors (many of whom rely upon their brokers for advice on such matters) to keep the funds invested, rather than using them to do some immediate good.

You can see this pattern clearly among the largest philanthropists. Four of the ten largest charitable donors in America in 2013 gave primarily to their own private foundations. (That is, they chose option two.) The single largest gift to charity in 2013 was by Mark Zuckerberg and his wife, Priscilla Chan, who donated a cool $1 billion to a donor-advised fund. (That’s option three.) Much of the money donated by the rest of the list went to university endowments. (Again, option two.) Yes, all of these options send money to charities providing actual services – but the funds will go out slowly, in relatively small amounts.

Some will argue that all charity is good, and that I shouldn’t carp. Others will say that there are many causes for which a measured, ongoing, long-term commitment is appropriate. But I say that more often than not investing in people today and getting ahead of social and environmental issues is a vastly better investment than plunking the funds into long-term investment accounts. The hungry child I talked about earlier is not alone: there are 49 million hungry Americans, including 16 million children. Our house, in my opinion, is on fire. But strangely enough we applaud while the firefighters drive off, waving, smiling, assuring us of their sense of commitment, and promising us that they will return on some other day.

Copyright Alan Cantor 2014. All rights reserved.

Accretion Happens

So why does your organization hold a charity golf tournament? Probably because it’s something you’ve always done.

My guess is that if you looked into it, you’d find that fifteen years ago you had a board member – now long passed from the scene – who loved to golf, and who saw a golf tournament as a way to get his friends connected to the organization. You’ve been doing the tournament ever since.

Every year you review the numbers. You see the fairly decent gross revenues, and the fairly small net revenues. Undoubtedly your budget fails to account for the staff time that went into finding those final three foursomes, nor does it quantify the stress of negotiating with the caterer or worrying about the weather. You also overlook the opportunity cost – what it was that you didn’t do because you were focused for three months on the golf tournament. And yet you convince yourself that next year will be easier and more profitable because you have a new committee chair, or you’ll be moving to a different time of the year, or you’ll be shifting to a new, popular golf course.

And did any of the golfers transition into donors, as was the original hope fifteen years ago? Nah – probably not. But you think that next year might be different! So you send out the save-the-date cards for next year’s tournament, hoping against hope that the work will be easier, the stress will be lighter, and the financial results will be better.

Same with the art auction. And the fashion show. And the 5-K race. And the benefit concert. You do them because you do them, and you keep doing them.

There’s an old line that the definition of insanity is doing the same thing over and over again expecting different results. I don’t think nonprofits clinging onto their special events are necessarily insane. I think they’re cautious. They’re stressed. They’re worried about how to replace the revenue. They don’t want to offend volunteers and board members for whom the golf tournament or auction is a social highlight. They might even enjoy the routine of the events – better the devil you know, and all. Or they see the success of other charities raising huge money doing similar events and draw the wrong conclusions. They notice that St. Grottlesex Academy raised $250,000 at their auction – and they want to get some of the action, ignoring the fact that the fancy prep school has an audience full of very wealthy donors eager to bid on two-week vacations in the Greek Islands, while their auction features items like $25 gift certificates at the local bike shop.

Look – I know I’m getting a reputation as the consultant who hates special events. I’ve taken a swing at golf tournaments and charity auctions in the past, and I imagine this post won’t be my final word on the subject. I’ll even admit that there is some value to special events above and beyond the money raised – they bring people together, they connect them (sometimes) to the cause, they raise visibility, and they are fun, which is no small attribute in the sometimes grim world of nonprofit fundraising. But in almost every case special events are inefficient at best, a huge time sink, and a distraction from much more effective activities.

Here’s the question you should ask yourself: if we weren’t already doing a particular event, would we choose to start doing so now? Knowing the time and cost and effort and benefit – would it be worth it? Or would we go a different route?

Special events pile up on a nonprofit’s calendar like layers of paint and varnish. They accrete. You forget the original goals and rationale for the events. You just keep doing them, and you try earnestly to do them a little better each time. And in the process, you crowd your schedule so that most of what you’re doing in terms of fundraising is event planning. (“Antique car show? Great! Bring it on!”)

And what aren’t you doing? You aren’t going out and visiting your donors. You aren’t calling them and asking them to visit your new facility. You aren’t getting back to them several months into the new year to tell them how you used their gift, and letting them know what a difference their gift made. In short, you’re not undertaking the single most important activity in nonprofit development: building a strong personal connection with your donors.

And why? Because you’re trying to find prizes for the winners of the golf tournament, or you’re negotiating the charge for the linens at your gala dinner, or you’re going door to door on Main Street begging merchants for gift certificates for your silent auction.

So pause and think. Remember that the single most important resource you have is the time of your staff and your volunteers. If you decide to use up that resource planning a golf tournament, that’s your choice. But don’t keep doing an event simply because it’s what you did last year.

Copyright Alan Cantor 2014. All rights reserved.

Naming the Number

A few years ago I was the chair of a nonprofit organization that was urgently raising money for a new building.

As part of that effort I called an affluent donor and close friend named Bill. I explained the need, and I noted that the building was to be named after a man we both deeply admired. Bill said that he of course would like to help. Then he added, “And what magnitude of gift, may I ask, would appropriately signify my affection for you, my respect for the honoree, and my support for the program?”

I told Bill that a number with five digits would suffice. And a check for $10,000 arrived two days later.

Bill was looking for what Nobel Prize Winner in Economics Daniel Kahneman calls an anchor. In his fascinating book, Thinking, Fast and Slow, Kahneman explains that an anchor is the critically important starting point for the buyer’s (or in this case, the donor’s) consideration.

One kind of anchor that nearly all of us are familiar with is the listing price of a house.  If the listing price is $299,000, a frugal shopper might offer $279,000, while an aggressive I-want-this-home-now kind of buyer would offer the full $299,000 or, in a very hot market, even a bit more. Note that neither bid deviates significantly from the starting point: nobody would offer $120,000 or $500,000, both of which would be seen, for very different reasons, as foolish. Offers inevitably differ from the original number, but not by much.

Nonprofit organizations similarly create expectations by how they structure their requests for contributions, but they don’t always do it effectively. I know of one nonprofit whose leaders wondered why they never received gifts larger than $1,000. One reason became clear: in the organization’s materials and on its website the highest suggested gift level was – you guessed it! – $1,000. Their anchoring number had been set too low. The signal they were sending regarding donations was that this was a place where $50 or $500 makes a real difference, and a $1,000 gift puts you on the top of the donor list. It’s not surprising that supporters were not taking it upon themselves to write $10,000 checks.

Don’t take this to mean that nonprofits should always suggest a specific number to their donor. In fact, as I have written before, often it’s better not to ask for a specific dollar amount. I find it’s frequently more effective (and vastly less stressful) to show the donor a Table of Gifts – an enumeration of the gifts at each level that you need (for example one gift of $100,000, two gifts of $50,000, four gifts of $25,000, etc.), and a listing of how many pledges at those levels you’ve received to date. You ask the donor to make a commitment as high on the chart as he or she feels comfortable. Everyone feels good coming away from this conversation, because donors haven’t been put on the spot, and solicitors haven’t had to agonize about how much to ask for. And because some people will give more than you anticipated and some will give less, it all tends to average out.

So should you suggest a number, as I did with Bill, or should you leave it up to the donor? It depends on the circumstances. Keep in mind that Bill asked how large a gift I was seeking. He was looking for a specific anchor point. And a Table of Gifts pretty much provides that anchor to all potential donors by giving a context for the scale of your need and the sorts of gifts you’re seeking.

Those of us in the consulting world will sometimes imply that there’s a single, absolute right way to approach donors. But I’ve come to realize that building positive, respectful, and effective relationships is more art than science. Frankly, a lot of this is intuitive. You have to listen to your gut. And, most importantly, you have to listen to your donor.

Copyright Alan Cantor 2014. All rights reserved.

Income Inequality: The Nonprofit Edition

Who here is old enough to remember the William Aramony scandal?

In 1991, Aramony, the head of what was then called United Way of America, was found to be having a series of affairs, culminating with a long-term liaison with a girl who was 17 years old (Aramony was 59) when they met. Moreover, Aramony traveled with her in style (four-star hotels, the Concorde to Europe, nights in a specially-purchased luxury condo in New York City), all on United Way’s dime. And this was on top of what was discovered to be a lavish $390,000 annual salary.

Aramony became the poster child for abusing the trust people place in charity. The scandal damaged the independent local United Ways, which were tarred by association, even though they had only a tangential connection to Aramony and his shenanigans. In fact, the scandal impugned the reputation of the entire nonprofit sector. And the United Way of America’s board of governors was roundly seen as equal parts negligent and clueless, and so extremely wealthy that they didn’t realize that paying the CEO of any charity that kind of money was utterly inappropriate. While Aramony’s travel style and sexual peccadillos clearly attracted attention, people were stunned enough by his salary alone that they raised their eyebrows and voices.

Flash forward a couple of decades. Aramony’s 1991 salary of $390,000, if adjusted for inflation, would equate to $667,000 in 2012. So it’s worth noting that the current CEO of United Way Worldwide, Brian Gallagher, earned a cool $1.2 million in 2012 – nearly twice the inflation-adjusted income of Bill Aramony. And it’s also worth noticing that Gallagher’s salary draws zero notice because it’s more or less in line with other executives at major nonprofits. In fact, compared with nonprofit hospital executives, many of whom earn several million dollars a year, it seems downright modest. (If you want to get really revved up about some of the salaries paid to nonprofit CEOs – not to mention university football and basketball coaches – you owe it to yourself to read Ken Stern’s With Charity for All. And I credit Stern with making this point about the growth in salaries since the Aramony scandal.)

From Occupy Wall Street to the latest State of the Union, in the past few years income inequality (and its first cousin, wealth inequality) have become a frequent topic in public discourse. Many people are upset because of the social and economic injustice: a growing number of workers and families are struggling to make ends meet while a tiny percentage of folks at the top are raking in millions. Some people are concerned because of the strain a weakened middle class and working class can place on the economy: if the masses can’t afford to buy products and services, they warn, economic activity will grind to a halt. And, of course, there are some people who think that income inequality is simply the market doing what the market does, and that to wring our hands and try to redistribute the wealth is counterproductive and socialistic.

Whatever your viewpoint, the inequalities that characterize the larger for-profit world have become an increasingly prominent fact of life in the nonprofit sector. At the hospital where the CEO is earning $2.5 million, it’s highly doubtful that the orderlies, nurses, technicians, and cafeteria workers are getting rich. In fact, they are likely to be facing staff reductions, salary freezes, and roll-backs of benefits – the kind of “tough measures” for which the CEO is rewarded.

Here’s one frustrating aspect about the absurdly high CEO salaries: for the most part they have come about not because nonprofit compensation committees are shooting from the hip, but because they are following to the letter the best practices encouraged by the IRS and state charity regulators.

You probably know the line from NPR’s “A Prairie Home Companion”: In Lake Woebegone “all the women are strong, all the men are good looking, and all the children are above average.”  That notion has given rise to the Lake Woebegone Effect in executive salaries. How it works is that a Board’s compensation committee will commission a study of CEO salaries at similar institutions – a course of action encouraged by the IRS. That study provides the committee with a salary range and average compensation. And then, because they will deem their particular CEO to be above average, the Board will pay their person at the top or even a bit above the range. When the next nonprofit undertakes a similar study, the average salary has consequently gone up – and then that group pays its CEO at the top or above the range. And so the salaries ratchet up, rapidly, inevitably, logically, and deplorably.

Some people ask me if nonprofit salaries are too high. Others ask me if nonprofit salaries are too low. I tell all of them: yes. The widespread veneration of the CEO, which has increasingly poisoned the for-profit corporate world, has infiltrated nonprofits. CEOs at many successful organizations are getting way too much credit, and way too much money. And the people in the trenches – the social workers, teachers, nurses, cooks, security guards, bookkeepers, and IT guys – are getting way too little.

And, there’s a second form of inequality in the sector: the yawning gap between small community-based nonprofits and the big elite institutions. But that important story awaits another post on another day.

Copyright Alan Cantor 2014. All rights reserved.

Perfection Paralysis

There’s a famous proverb attributed to Voltaire: “Don’t let the perfect be the enemy of the good.” I get the feeling Voltaire may have spent some time hanging around nonprofit boards.

Here’s the scene:

It’s a nonprofit board meeting, and the discussion is about the board’s role in fundraising.

Board members are in the process of committing to taking the lead in identifying and cultivating donors. They have agreed that for the good of the organization they have to move in this direction. But then, one by one, they start expressing qualms. In short order, it’s a complete qualm storm.

“You know,” says one board member, “As volunteers, we don’t have the stories that would make us effective in this role. We won’t be convincing. Before we start meeting with donors, don’t you think we need training to help us get really comfortable with a bunch of those stories, so we can communicate the message better?”

“I’ve seen other organizations that have really great videos about their work,” says another. “Gosh, I saw one the other day, and it made me cry. I’d feel a lot better if we had a video to fall back on, one that would really help people to connect. Isn’t it premature to go speak to people before we have a DVD to show them?”

“It’s hard to get people interested if they’ve never heard of us,” says a third. “Couldn’t you do a better job of sending out press releases and getting our name out there so people will be primed before we start talking to them?”

To which my immigrant grandmother would have said: “Oy!” (So too, her grandson.)

Here’s the deal, folks: If a board waits until everything is lined up, until everything is perfect, until all the tools are in place and each and every precondition is met, they’ll never get out the door for even one visit.

Board members don’t need to be familiar with the program stories. The staff member who is in on the meetings can provide that kind of emotional detail. Board members’ role in these situations is to build a connection to the potential donor and to vouch for the importance of the work and the quality of the organization. Board members need to be able to say why it’s important to them. The story that matters is the story of why the particular board member cares so much that he or she is willing to knock on doors to pitch the organization.

You don’t need a video to sell your organization. Most videos aren’t very good anyway – and a conversation is far more engaging. And you certainly don’t need extra press releases. Frankly, nobody reads the papers much anyway. You have to accept that your organization is not and never will be a household word. If you want to sell a product everyone knows, go and become a salesperson for Toyota.

Conditions will never be perfect to attract donors, so there’s no time better than now. Pick up the phone. Set up a meeting. The donor may say yes, or the donor may say no. But that’s vastly better odds than if you never asked at all.

Copyright Alan Cantor 2014. All rights reserved.

Sins of Commission

A central principle of nonprofit development is that individuals should not get paid on a commission basis.

According to the Association of Fundraising Professionals, paying nonprofit fundraisers commissions is unethical because the self-interest of the staff member can distort the solicitation process. A gift needs to be right for both the donor and the organization, and it needs to be driven by a genuine charitable impulse.

When the fundraiser’s compensation is directly related to realizing the gift, all sorts of bad things can happen. The conversation between solicitor and donor can turn coercive and misleading. Donors may be pressured to make the gift before they are ready. The solicitor may encourage gifts that are not in the best interest of the organization. Moreover, even if such a compensation scheme were ethical, it would rarely be fair, since the gift that arrives in 2014 is probably as much the result of earlier cultivation by the organization as the efforts of the current staff member who happens to make the ask or open the envelope.

Nonprofit staff and board members and government regulators agree: paying commissions on gifts to charity is the province of the kind of shady firms that give nonprofit fundraising a bad name.

At its essence, raising charitable dollars is different from selling insurance or cars or brokering real estate or stocks. Charitable fundraising is about people giving of their own free will to causes they care about. And though nonprofits need to market themselves and do what they can to build relationships with donors, fundraising is not about relentless efforts to make the sale. It’s about helping people do good with their money. Certainly the better fundraisers get rewarded through rising salaries. But to pay commissions is unseemly at best, and unethical or illegal at worst.

Nothing I’ve said so far is the slightest bit controversial. This has been the standard approach to nonprofit fundraising for as long as it’s been done.

Enter the commercial donor-advised funds – “charities” that are essentially subsidiaries of major financial firms. Fidelity. Schwab. Vanguard. UBS. Morgan Stanley. I call these NINOs – Nonprofits In Name Only – that provide their donors with full tax deductibility, and then house the money (with no requirements that the funds be given away) until some unspecified future point, when the funds will be distributed to charity. These entities obviously evolved from a different culture than nonprofits. And that very different lineage clearly surfaces where compensation is concerned.

As I’ve pointed out in earlier posts, in recent years NINOs have soared in popularity. And a large reason for this success is the very kind of commission that is considered unethical in the nonprofit world.

Here’s how it works. You are a client of Bill, a financial advisor at a major firm – let’s call it ABC Brothers Financial. You ask Bill to transfer some stock to three different charities you want to support. Bill counters by saying that another way of approaching charitable giving is to set up a donor-advised fund right there at ABC Brothers. He’ll note that donating stock from your client account to an in-house donor-advised fund will be simple (true), and that you’ll get a full charitable deduction at the time of the transfer (also true). He’ll explain that you can then send the funds to those organizations now, or make those gifts next year, or the year after. He’ll mention how you can choose to let those funds grow over time.

What Bill doesn’t say is that he will continue to draw a commission for those donor-advised fund dollars – the same as if the money were still in your name, not the charity’s. What Bill also doesn’t say is that the longer you keep the funds undistributed to charity, the more money he will make. Finally, Bill doesn’t say how his employer will draw a fee from the investment your donor-advised fund makes in its mutual funds. (I estimate that the largest of these NINOs, Fidelity Charitable, nets Fidelity Corporation a cool $75 million a year in mutual fund fees.)

Clearly what Bill is doing is in violation of established fundraising ethics. He is soliciting a charitable gift, and he is getting paid a percentage of that gift. The larger the gift, the larger his compensation. Moreover, he has a personal incentive not to have the funds go out to actual charitable purposes. The smaller the actual contribution to operating charities – that is, the smaller the impact on the community – the larger his compensation.

I have caught some heat for expressing my views on this. Members of the financial services community have protested against my insinuations that financial advisors are motivated by commissions when they recommend donor-advised funds. They say that they are driven to serve their clients, and that they are promoting charitable giving. To which I say: if these commercial donor-advised funds are actual charities, then the financial services community should abide by the rules that govern the nonprofit world. No commissions.

But then again: if there were no commissions and fees and profits involved, these entities would never have been created in the first place.

Copyright Alan Cantor 2014. All rights reserved.

Too Much Information

Three aspects of the digital age: It’s very easy to find information, and it’s ridiculously easy to disseminate information, but it’s no easier to assimilate information than it was a hundred years ago.

Think about it. With one push of the button, you can send a picture or article to 30 or 300 or 3,000 Facebook friends. You can do the same thing through dozens of other social media sites. I am sending a link to this blog post to a few hundred of my followers, and I am pushing it out, as well, on Facebook, LinkedIn, and Twitter. Of course, as I go through this exercise in digital dissemination, so do millions of other people and causes. And hundreds of these links, blasts, and tweets end up in your lap – or at least on your laptop – every day. (By comparison, when I was a young executive director nearly thirty years ago, over the course of the day I might have received a total of 15 phone calls or letters.)

And, of course, the tweets and blasts find you wherever you are, thanks to the insistent reminders of your smartphone. Mine flashes a blue light when I have a new message. I can no more ignore that flash than a mother can pretend not to hear the cry of her newborn.

The problem is that we as individuals still don’t have the ability to focus on more than one thing at a time. We talk about multi-tasking, and some people can fool themselves into thinking they can juggle many tasks at once, but what it really means is that our attention is divided. Instead of losing ourselves in one activity, we are somewhat aware of many. We are scattered, overwhelmed. We can’t even pretend to absorb everything that’s thrown at us.

One way people deal with the information overload is to skim, to presume, to jump to conclusions after a quick glance. This was exemplified by my high school friend Tom, who a few months ago sent me this email: “I didn’t finish reading your last blog post, Al – but I couldn’t disagree more!” (He said this without irony.) Tom had apparently read a few buzz words in my piece (“government,” “capitalism,” “banks,” “charity”) and, without digging for nuance, rearranged those words like a magnetic poetry set on a refrigerator door into the argument he thought I was making. And then he strenuously dissented.

Most of us are not as direct about the way we skim over information as Tom. Instead, we rely on trusted guides to interpret and understand the huge volume of information we don’t have the time or the inclination to absorb. Some of these guides are very helpful, like when we have a friend who enjoys analyzing information about cars and can then tell us whether to buy a Camry or an Accord. Some guides are not helpful, such as demagogic politicians or the media outlets that broadcast their views.

So what does this have to do with nonprofits?

Well, first, if you work for a nonprofit, you need to keep your information clear and brief. Figure out what you absolutely need to say, and then edit it down from there. Repeat your key messages over and over: you may get bored doing this, but it’s not about you. It’s about your listener. And your listener… isn’t listening.

But here’s the part that’s critical: you need to build close personal relationships with your supporters. And you do that in person – not on line. If donors come to know and trust you, you and your organization can break through the noise. Essentially, you will be their guide – a trustworthy source of information. And when you then ask for help, whether during a visit or by letter or, yes, electronically, they will respond.

Certainly, you should have a Facebook page for your organization. You need to play the social media game. But social media for the most part will not win you genuine friends or build you new relationships – it will mostly serve to reinforce your established relationships. If donors know and trust you, they’ll respond to your posts and tweets. If not, they won’t.

I find that people have a craving for genuine one-on-one interaction. People want to belong. They want to be heard by other human beings. This explains in part why book clubs are booming: information is available everywhere, all the time, but people want the chance to analyze that information in the company of people they know, like, and trust. They want to sit and talk and interact and think together (and, yes, eat and drink together) without distraction. They want to share an experience. And they can’t get that from their smartphones.

So in this era of information overload, the old rules of fundraising still apply – in fact, now more than ever. People give to people. You get to know those people face-to-face. And if you allow the many distractions of the digital age to prevent you from getting out to meet your donors, you won’t be successful, no matter how many re-tweets and “likes” you rack up.

Copyright Alan Cantor 2014. All rights reserved.

A Board’s Most Important Role

Good nonprofit boards put a lot of time into strategic planning, creating effective policies, and raising funds – all very important roles.

But very few put enough time into their single most critical task: monitoring, supporting, evaluating, and, if necessary, replacing the CEO.

An organization can have the best five-year plan in creation. It can have the most thoughtfully engineered board committee structure imaginable. It can have an investment policy that would put an Ivy League university to shame. And none of that matters if the CEO is ineffective, because the CEO is the person who executes the plan and carries out the policies. Or, more exactly, the CEO hires and manages the people who execute the plan and carry out the policies. How well they do their work determines how well the organization achieves its mission. And their performance is the CEO’s responsibility.

This would lead you to think that ensuring the CEO’s effectiveness would be board’s top priority. But many boards shy away from doing comprehensive, meaningful evaluations. And when CEOs are doing a poor job, more often than not boards look the other way and avoid evidence of crisis.

I was once on a board where the central agenda item at one of my first meetings was the CEO’s annual evaluation. The board chair, who was a successful corporate leader, called an executive session and, in the course of five minutes or so, discussed the conversation he and the vice chair had had with the CEO about his performance. That conversation apparently comprised the CEO’s entire annual review, and the chair was simply reporting the high points back to us.

I asked two questions, both, to my mind, simple and uncontroversial.

The first was: How much is the CEO getting paid? The second was: Did the chair interview key staff members to get feedback on how the CEO was carrying out his work?

The board chair hemmed and hawed about the salary level before blurting it out. As it turned out, the salary level was perfectly fine –it seemed neither too high nor too low – but given the number of stories about clueless nonprofit boards paying their CEOs too much, I continue to be surprised when CEO salaries are treated as a state secret. (Moreover, since CEO salaries are available for the world to see though tax returns posted on Guidestar, it’s a singularly poorly kept secret.) All board members should know what the CEO is getting paid, and they should feel comfortable that the compensation was arrived at through a structured, objective process that included salary comparisons with like organizations.

As for my question about whether staff were contacted in the review process, the board chair harrumphed that that’s totally inappropriate, and that that kind of inquiry would undermine the authority of the CEO.

I couldn’t disagree more. Again, the work at the nonprofit is carried out by the staff. The staff are chosen and motivated and monitored and supported by the CEO. A CEO who leads them well runs a good organization. A CEO who leads the staff badly inevitably runs an ineffective organization. And so isn’t it logical for the board to ask the staff how the CEO is doing?

I have seen many examples of CEOs who do a magnificent job of managing up – that is, attending to the board, providing them with the attention and information they need, building close personal friendships – while doing a mediocre-to-lousy job of managing the staff. And I have seen that in nearly every case the board fails to look below the surface. Board members take all their information and guidance from the CEO alone and ignore clear warning signs, such as high staff turnover rates or poor financial performance. I know of one small organization that had 100% annual turnover of staff year after year and a disturbing structural deficit, but the board chair insisted that there was nothing wrong. If there was a problem, said the chair, it was that the staff did not appreciate the genius of the CEO. The CEO was kept on about five years too long, until the organization had lost all credibility and was on the verge of bankruptcy.

I understand why boards fail to act. Firing a CEO is ugly and unpleasant. And running a search for a successor is time consuming, overwhelming, and fraught with challenges – plus there’s no guarantee that the new person will be any better than the incumbent. (Better the devil you know, and all of that.) Given that board members are volunteers, they are much more likely to look the other way than to recognize problems and start the process to send the CEO packing.

But the most important role of a nonprofit board is to hire and oversee the CEO. A critical element of this is to have a formal annual review, a process that solicits confidential input from board members and key staff members, requires the CEO to submit a self-evaluation with goals for the next year, includes a study of CEO salaries for comparable institutions, and provides honest feedback. It is only through this sort of process that a board even begins to know if there are issues.

It’s lonely being a CEO, and even the best need support and direction. Meanwhile, the bad ones – for the good of the organization, the staff, the clients, and themselves – need to be shown the door.

Copyright Alan Cantor 2014. All rights reserved.