Pressure to Win Big Donors Is a Problem for Many Community Funds, Not Just Silicon Valley

The recent meltdown at the Silicon Valley Community Foundation was about more than the alleged misbehavior of a senior staff member who appears to have run amok.

Emmett Carson was a talented CEO, but his apparent toleration of unacceptable behavior appears to have been connected to a desire to shield his deputy, Mari Ellen Loijens, who had an impressive track record of attracting gifts from ultra-wealthy donors.

Successful fundraising should never be a bad thing, but it can be if an organization makes it so primary a focus that there’s a disconnect between money and mission. Leaning in favor of donors and undervaluing the needs and concerns of local residents diminishes the essential value, if not the purpose, of a community foundation. Sadly, this elevation of donors over doers is evident in more than a few community foundations.

Several community-foundation leaders I’ve spoken to in recent weeks described the immense pressure they feel from peers, and also their boards, to bring in ever larger sums of money. One executive lamented that the only question he usually gets from counterparts at gatherings of leaders from other communities is about how much the fundraising results at his foundation have been growing. It leaves him feeling he’s not doing his job adequately unless the amount he raises continues to rise.

As the former head of Independent Sector — and the spouse of a leader of the predecessor organization of the Silicon Valley Community Foundation — I have had a front-row seat to the debates over the evolution of community foundations. And I have faced my own challenges as an organizational leader, so I understand the pressures facing Carson and others. All of that contributes to my perspective on what we can learn from what happened at Silicon Valley.

Unique Perspective

Community foundations were created to serve defined geographic areas. The idea was that these institutions would understand which nonprofits and causes most needed funds to improve their areas and connect donors to organizations doing important work.

Many community foundations aren’t fortunate enough to have a donor pool the size of the one in Silicon Valley, but they have been able nonetheless to punch well above their weight in attracting money from national foundations, corporations, and others to support important local causes.

When functioning at their best, staff members at community foundations are uniquely positioned to use their knowledge of local needs and organizations to educate potential donors. Some leaders of community foundations find their position helpful in building relationships with donors while strengthening those donors’ ties to a community.

Despite the limited amount of ‘no strings attached’ money that may be available to these community-foundation leaders, their potential access to thousands of donors makes them a honey pot not only to charities but also to government officials.

I remember one occasion when I was dining with the CEO of a midsize community foundation and three gubernatorial candidates stopped by our table to chat, in the hope of winning this very influential community leader’s support. Another executive shared with me his excitement at bringing together leaders from the city council, the local Chamber of Commerce, and key nonprofit organizations to discuss ways of improving life in the city. Yet another leader quietly worked behind the scenes brokering collaborative efforts by several national foundations and local officials to help make some crucial investments in the city.

Tougher Competition

The success of community foundations depends on their ties to the geographic areas they serve and their access to donors. If this approach is so fundamental to the institutions’ mission and success, why would anyone want to upend it and tilt toward donors and away from the needs of local charities?

The short answer is the steep competition with commercial gift funds and changing donor preferences. It may also have something to do with what boards now expect from their CEOs.

In 1991 the IRS made it possible for Fidelity Investments and other financial services companies to set up donor-advised funds, in which these firms manage their clients’ wealth as well as their charitable donations. It’s worth remembering that these managers are in business to make money for their clients, and they charge modest fees for managing the donor-advised funds. These funds run by financial institutions have grown astronomically. For the past two years, the Fidelity Charitable Gift Fund beat out United Way Worldwide to become the largest recipient of charitable funds in the United States.

Because donor-advised funds don’t have a minimum distribution requirement and the donor gets the tax benefit when the donation is made to the fund, there is no pressure to distribute the money to charitable causes.

Managers of both commercial and community-based donor-advised funds are quick to point out that the average distribution of those charitable dollars is in the double digits and far exceeds the minimum payout required of private foundations.

It stands to reason, then, that these managers shouldn’t object to a requirement to distribute the funds over a specific period, say, five years. Yet both nonprofit and commercial organizations that offer donor-advised funds worry about the precedent of a requirement. After all, only private foundations are now subject to a federally required minimum for how much they give annually.

Donors have long been agitating for more options for giving to specific causes they care about rather than pouring money into one pot to benefit the whole community. I remember working more than 15 years ago in a federated system in which fundraisers found themselves competing with the very charities they supported as donors bypassed the broader campaign and directed their dollars to causes of special interest to them.

Today that process has been vastly enabled by technology that allows donors to easily find like-minded investors.

If you want to support issues related to women, there is Women Moving Millions. If you prefer arts, go online and find Grantmakers in the Arts or a smaller or less formal group. Given how challenging it is for regionally focused charities to compete for money in this technology-driven environment, it’s no wonder that some community foundations focus disproportionately on attracting the interest of donors.

Rooted in Mission, Not Donors

The great tragedy of tipping toward donors at the expense of community interests is that it undermines the essential and unique role that community foundations can play as connectors — between people and institutions in a particular area, between donors and causes.

One community-foundation executive lamented to me that if he allocated more time to raising dollars, he was sure to bring in additional donors but had no doubt it would limit his work in the community. For him, a heavy focus on community meant developing a smaller asset base, and he hoped his board would continue to support that priority.

Another executive suggested that the very legitimacy of her community foundation came not from its donors but its role in the community. “It’s all about the roots and sinew,” she said.

Donors are a co-equal part of the equation. They always have been. Getting donors to the table, whether through the creation of a donor-advised fund or, preferably, through a gift to an endowment, has always been a vital part of the work.

But building a network of wealthy and generous donors does not need to come at the expense of involvement in local causes.

Community-foundation leaders who go after the dollars and don’t engage deeply with the people who live in their region will soon find themselves resented by local organizations. In fact, it is this local involvement that distinguishes community foundations from other grant makers and fundraising organizations.

What to do about the twin challenge of remaining relevant while not becoming just another fundraising entity?

Examples abound of both long-serving and newer CEOs in vibrant and financially challenged cities who have substantially beefed up their endowment coffers while engaging deeply in their communities. Paul Grogan in Boston; Clotilde Perez-Bode Dedecker in Buffalo; Isaiah Oliver in Flint, Mich.; and Fred Blackwell of San Francisco all come to mind as sources of inspiration. The field is dotted with exciting, dynamic leaders, from southern Appalachia to the San Joaquin Valley.

Fundraising will continue to be a challenge for community foundations, even as giving in the United States has increased. With the help of big tax cuts to the wealthy, a strong stock market, and a robust economy, overall giving reached an all-time high of $410 billion last year.

Leaders of community foundations have to make the case to donors as to why they are uniquely able to drive investments in a way that really matters locally. And if they can attract endowment dollars, as many have in all parts of the country, they will show themselves to be an invaluable asset to every community.

Diana Aviv, former chief executive of Independent Sector and Feeding America, is now a consultant to organizations on strategy, leadership, and social innovation.