Strategic Planning

We often talk about how today’s major gift donor is more sophisticated than ever, and thus more demanding. This is a good thing, because it makes those of us who are professional fundraisers more accountable and responsive to the needs of the donor. For example, a prospective donor, when approached with an idea that would require a $250,000 endowment (with an annual earnings payout of $10,000–$12,500, depending on spending policies) might respond by saying something like, “I like your idea, and I’ll give you $10,000 this year to implement it. If I like the result, I will repeat that next year, and maybe one day endow it. What I’m not willing to do is write you a check for $250,000 and hope you can deliver.” This leads to an important lesson in stewarding endowments.

I was a recent participant in a client’s foundation board meeting, and the Chief Financial Officer was going over some routine numbers in the financials. The CFO stated that the aggregate balance in the earnings portion of all the endowed accounts under the foundation’s management stood at $14 million. This prompted one of the board members to remark that this seemed like a large amount at an institution with a $60 million endowment, and he wondered how and why this large balance had accumulated.

The president of the university and the CFO did their best to explain how deans and others responsible for spending from endowed accounts don’t always pay close attention to the accumulated earnings, and that they sometimes have good reason for not spending, such as having a vacancy in an endowed faculty position, or having scholarship criteria that are difficult to find qualified students to fill.

The board chair asked my opinion on the topic, and I was more than happy to weigh-in, because I’ve seen this phenomenon happen for many years at institutions with endowments both large and small. I told the board that these were exactly the questions they should be asking, and remarked that I call it the ticking time-bomb in stewardship. In other words, if a large number of donors knew the extent to which accumulated earnings have grown without an offset in spending, they would probably be very upset and less likely to make additional gifts—making fundraisers’ jobs more difficult.

This discussion continued for a good 30 minutes more. The board requested that the CFO compile additional information for the next meeting, and the board chair appointed a small task force to work with the staff to find ways to rectify this situation, including the possibility of rolling unspent earnings into a quasi-endowment, which would not only lower the unspent portion, but would create more funds to be invested within the endowment pool. They also wanted to know which units within the university were the worst offenders—not so they could be punished, but so they could possibly become better educated about the stewardship issues this practice creates.

Here are three ways to avoid this becoming a problem for your organization.

  • Educate deans and others who are responsible for spending from endowments about the importance of being good stewards, and that donors expect and deserve that the funds be spent for the purpose intended.
  • Provide annual stewardship reports to donors, which include both the performance of the endowed fund, and the ways in which the earnings were used during the year.
  • Put systems in place to hold individuals accountable for spending available funds annually for the purpose(s) donors intended, including consequences for when they don’t.

Now is the time to make sure that you have identified any potential gaps in your stewardship plan and have made plans to address these. BWF’s Dennis Prescott can help with assessment and strategic planning of your program.