Why Should Donors Support Your Charity?
Besides the people behind the organization, admittedly a charity’s most important asset, are the hard and soft assets that allow a not-for-profit to exist. The asset category that is the focus of this article is those monetary or investment assets that exist because of the passion and generosity of the donors. Without these donors and their commitment and affinity to the mission, a charity’s longevity would be no more than a short-lived social experiment. It is these investment assets that assures the longevity of the mission and the quality of experience the charity espouses.
Consider for a moment you have been introduced to a certain not-for-profit and are being wooed to be a supporter, and hopefully, a loyal and significant donor. What kind of qualities would be of interest to you and instill a level of comfort with the organization which would allow you to make a substantial or long-term financial commitment?
With so many charities losing public funds as a source of funding, many are “competing” for the same dollars in the private sector. Additionally, the private sector has become more discriminating in their giving practices due to many factors. These include scandal, mismanagement of donor funds, lavish expenditures, and a whole host of other obstacles that have given donors pause when considering supporting an organization.
Charities that are inspiring new donor contributions and have successfully maintained their long-tenured contributors are able to articulate, quite compellingly, its pledge to exceptional stewardship with “loyalty and care” imbedded in its DNA.
Demonstrating Exceptional Stewardship
Endowments and foundations have legal, ethical, and practical reasons to promote good stewardship, but there are a number of ways to define it. The Centre for Fiduciary Excellence (http://www.cefex.org) has a limited definition of stewardship which applies primarily to investment stewardship. Don Trone, CEO of 3ethos (http://www.3ethos.com), describes it more broadly as “the passion and discipline to protect the long term interests of others.” No matter how you define it, the principles which promote good decisions are the bedrock of good results.
At the heart, there are two key principles to good stewardship: loyalty and care.
• Loyalty: Is your loyalty for the organization and its mission, or elsewhere? Do you have to balance your goals with a different party? Is your loyalty divided or focused on the mission?
• Care: Are you doing enough due diligence in your decision making process, either in terms of vetting vendors, selecting investments, or setting & monitoring goal?
Qualities to Look For
The key principles of loyalty and care are simple but vague. When these basic principles get applied, what sort of effect can it have on a non-profit organization? In short, how do you know if you’re demonstrating adherence to these principles with your actions or merely providing lip-service to the concepts without your words matching your deeds?
There are a few qualities which are highly correlated with good stewardship. If you want to take a self-assessment, look for these features:
• Governance: Having in place policies and procedures which set the expectations for actions, like rebalancing, the criteria for selecting investment managers, delegation of authority. Furthermore, a set of pre-ordained contingency plans within accepted policies can allow a charity to be nimble when reacting to time-sensitive needs, but not forced into poor decisions by ad hoc crises.
• Transparency: Every organization has some items they need to keep confidential (employee records, donor information), but total secrecy is a rare requirement for charities. Promoting transparency by disclosing operational details can demonstrate high accountability and a commitment to fixing mistakes or making improvements.
• Legal Compliance: Obviously, a charity which has trouble meeting the legal requirements of the various laws (the NYS Non-Profit Revitalization Act, UPMIFA, etc.) should be held under higher suspicion.
• Independence: Charitable institutions typically have multiple professional engagements, simultaneously watching each other to catch mistakes and avoid conflicts of interest. For instance, it may be problematic if your audit firm is also acting as your investment advisor. Having independent operators servicing your plan, with a clear delineation of duties, promotes independent and comprehensive decision making. Demonstrated independence via utilization of multiple vendors (including auditors, investment managers, and investment consultants) can ensure a higher standard of both loyalty and care.
• Low costs: Every fee paid to a vendor diminishes the potential advancement of the charity’s mission. Excessive salaries to employees represent an abuse of charitable donations. There are many charities which abuse the goodwill and donations of everyday people, but there are an equal number of charities which keep external costs and internal spending in check.
• Longevity: Sadly, some untrustworthy charities exist to collect donations from generous individuals rather than serve the advancement of the charity’s supposed mission. On the other hand, some charities exist for decades because of a demonstrated ability to meet their goals and value to donors. The longevity of a charity should give donors the ability to benchmark their history of supporting their given mission.
• Budgeting: A good steward acknowledges its resources and budgets them accordingly. A long term, stable budget can set expectations for the community partners.
• Solid returns – It is no coincidence that good practices are highly correlated with good results. After all, fortune favors the prepared.
Digging Deeper: Governance & Transparency
Let’s revisit the above qualities or visible components of stewardship and focus on the first two: Governance & Transparency.
Quoting Wikipedia, governance refers to “all processes of governing, whether undertaken by a government, market or network, whether over a family, tribe, formal or informal organization or territory and whether through laws, norms, power or language.” It relates to “the processes of interaction and decision-making among the actors involved in a collective problem that lead to the creation, reinforcement, or reproduction of social norms and institutions.”
Does your organization have its processes expressed in such a way that an outsider looking in can understand how things get done, who is responsible for what duty, who owns a particular responsibility, and where the buck stops? Thoughtful governance documentation will demonstrate these processes. Board charter, committee charters, board resolutions, investment policy statements, minutes (to name a few) are all necessities to demonstrating commitment to good governance and high standards of “loyalty and care”.
Transparency represents the amino acids or building blocks of good governance. An organization that welcomes the bright light of transparency will endure any examination required of it. The Ford Foundation in its effort to “promote transparent, effective and accountable government” states on its website that, the goal of this work is to improve the transparency, accountability and inclusiveness of government institutions and processes.
An attentive donor to an organization is going to ask questions of an organization far beyond mission-based. The ability of an organization to share openly its challenges that promote long-term growth is of keen interest to supporters.
A well-managed charity can have an enormous, positive impact on the world. Demonstrating a commitment to supporting the factors of good stewardship will create donor comfort, thus improving your charity’s ability to enact positive change. Take action. If you need clarification on what specifically your organization should do, find a qualified fiduciary consultant to lead you through a process to improve your practices.