April 22, 2019 | Read Time: 9 minutes
A joy — and part of the art — of working as a fundraiser occurs when you can match the needs of your organization with the passion and goals of a donor. However, the path to fundraising success can be unpredictable, and situations may arise that require complex conversations.
Recent headlines offer numerous examples of high-profile donors who became dissatisfied with the way nonprofits used their gifts. In some cases, donors have withdrawn pledges or taken charities to court; some organizations were forced to return money to wealthy individuals. The negative publicity from these public spats can damage reputations and scare off other donors.
Donors can complicate their giving, for example, by trying to direct your fundraising efforts, making gifts that only partially support ambitious projects, or requesting something that presents ethical challenges. To help you prepare for such situations, here are some hypothetical situations, drawn from real-life cases, and suggestions on how to handle them.
Financial Strings Attached
A donor wants to start a new program with only partial funding. A highly motivated donor is pushing a new program. He finds an ally in your organization and develops a business plan. However, he can only afford to give half of the amount needed to start the program. He is lobbying for the organization to match his gift. Your chief financial officer objects because the program has no sustainable revenue source and says the gift should be refused.
How should you respond? Ideally, your nonprofit’s gift-acceptance policy will provide guidance. If you plan to accept the gift, you could propose a pilot of the program on a limited scale for a set period, using the donor’s gift. Doing so offers pros and cons. The program will either succeed or fail, and the organization’s risk is diminished because the institution hasn’t committed to a permanent program. Plus, while the program is underway, it may attract other donors. However, you also should consider that the project’s failure could generate ill will within your organization and among those in your community.
A donor wants to fulfill a gift pledge using closely held stock in her company. The donor seeks to start a new program at your organization and indicates that her gift will support the program for five years. Your CEO is thrilled and can’t wait to get started. When negotiating the terms of the agreement, however, the donor explains that she will fund the gift with closely held stock in her private company.
How should you respond? A gift of closely held stock usually does not generate revenue until the stock is sold. Because the shares are not publicly traded, often there are few buyers willing to purchase the closely held stock (usually the donor, other employees, or family members). Owning closely held stock can present other risks for nonprofits and may result in tax complications, too.
If you proceed with the gift, state clearly in the agreement that the time frame for starting the program will be established after the stock is sold. Alternatively, ask the donor to make cash gifts to fund the program each year until the closely held stock is sold.
A donor publicly announces a commitment, then explains that half the amount will be given after his death, through his estate. A loyal major donor to your university stands up at a committee meeting and announces his $10 million gift to name a planned athletic facility, which is the requisite naming amount for the building. After the meeting, he explains that $5 million of his gift will be paid over five years and the balance will come from his estate; he is 65 years old. To begin construction, the university needs close to 100 percent of the cash in hand.
How should you respond? Blended gifts are an essential part of any fundraiser’s tool kit, but they are not ideal for capital projects. Because this donor is very important to the university, you must find a way to make this work for both parties. Review the business plan with the donor and explain why cash is necessary now. After clearing it with your chief financial officer, ask him to consider contributing other assets sooner (stock, real estate, etc.), or suggest he fulfill his $10 million pledge in cash over the 10 years.
A family demands the return of a gift made long ago, citing changes in the program. Several generations ago, a prominent family made an eight-figure gift to your university to endow and name a high-profile policy institute. The family is, by and large, politically conservative. Leaders and faculty at the institute have changed many times over the years, and the ideas emanating from the institute are now politically liberal. The family has voiced concerns many times about the political balance of the faculty, but the drift to the left has continued. Recently, the institute issued a report that received international attention, but members of the family vehemently disagree with its findings. They are embarrassed and furious that their name is associated with the study. They demand that their name be removed from the institute, and they want their endowed gift returned at the current fair-market value. They threaten a lawsuit if the university refuses to return the funds.
How should you respond? The first goal is to avoid the additional embarrassment of media coverage of the dispute. Only the fiduciary board of the university can act in this scenario. Usually, groups have a gift-acceptance committee or an executive committee of the board that handles such situations. The committee should consider options, appoint someone to negotiate with the donors, and make recommendations to the full board for final action. Because issues like this will undoubtedly arise in a polarized political climate, to avoid or minimize disputes, create a well-crafted gift agreement that allows for changes in circumstances over time and for alternative use(s) of the funds.
Setting Limits
A donor wants to be on the search committee for the new dean who will hold the endowed chair in her name. Your biggest donor recently endowed the dean’s position at your school. The college is recruiting a new dean, and the donor asks if she can serve on the search committee as a voting member.
How should you respond? Having donors serve on search committees is fraught with risks. For example, the donor may learn a little more than necessary about internal politics. Or, the donor may not agree with the prevailing opinion regarding final candidates. In this case, it is advisable to respond to the donor that she will be kept fully informed of the search process and meet the final candidate(s) before a selection is made. However, make it clear that the final selection lies solely with the president and provost.
A donor wants a seat on the board of trustees in exchange for a gift. A long-time generous donor to your organization proposes a significant new gift but wants to write into the agreement that members of her family will have a permanent seat on your board of trustees. Your CEO and board chair really want the gift and to make this donor happy, but they are uncomfortable with the terms involving the permanent board seat. They ask you to negotiate the deal.
How should you respond? Every organization should have a policy by which new board members are identified, recruited, and approved. This policy should be created with the involvement of a board subcommittee charged with governance. You must ask members of the governance body to provide a written response to the donor on behalf of the board and the organization, indicating that they do not approve of a permanent seat. You can also work with your gift-acceptance committee to offer the same verdict.
A donor wants your organization to hire her nephew. A donor agrees to make a major commitment to your organization. You arrive at her home to review and sign the pledge agreement. After the signing, she suggests strongly that you hire her nephew to fill a job opening in your office. He has no fundraising experience and does not have the best reputation in your town.
How should you respond? Emphasize the importance of the position and explain that you have attracted a pool of qualified candidates. Offer to interview the nephew and have members of your team do the same. When you do not hire him, follow up with the donor to explain why the chosen candidate was a much better fit for the position. Although it may be awkward, suggest that he gain development experience and apply for another role in the future.
Who’s Calling the Shots
A donor wants to raise money for a favorite project by holding a gala. A board member has supported a project for years and wants the program to expand. She proposes holding a fundraising event, even though your organization already organizes several.
How should you respond? First, review your organization’s annual event schedule with the donor and help her understand all the effort that’s required to plan and hold a successful event. Show her a list of other major galas in your community organized by other charities; the competition may discourage her. However, if she still insists on an event, help her build an invitation list of her friends and family who will provide the core support and discuss pricing of sponsorships and tables. Help her conceptualize a distinctive event that will stand out from other such activities in the community, and suggest that you start with a smaller gathering at her home or club to test the waters.
A donor thinks your nonprofit can match his gift for an esoteric program through crowdfunding. A donor who supports a niche program is frustrated because others do not share his vision for its growth. He believes more people would support it if they knew about it, and he strongly recommends to your CEO that the organization run a crowdfunding campaign to garner support for the cause ― even though your nonprofit has never held such a drive.
How should you respond? First, brief your CEO on crowdfunding campaigns, including the amount of work involved, and if possible, describe examples from other organizations. Then, instead of a crowdfunding drive, create a plan to raise awareness about the program. Share the examples and the awareness plan with the donor. Ask the donor to recommend others who might support the program and to host a gathering for them with the program’s leader. This may cause the donor to realize how rare his interest is, or may reveal broader support for the cause that could be met through an alternative to a full-scale crowdfunding campaign.
Ideally, all philanthropy gives donors joy and leads to positive change in our society. But situations without complications may exist only in a CFO’s dreams. Nonprofits are bound to be snared by complications similar to those described above, so put mechanisms in place to respond to complex realities in ways that protect your organization and your donors.
Stuart Sullivan, senior vice president at Graham-Pelton, provides counsel on campaigns, strategic planning, various forms of giving, and management of programs and staff.
