Where the Action Isn’t

Charities look for money in all the wrong places, experts say; fund raisers urged to seek new wealth, not old

Many charities are spending too much time wooing the wrong donors for big gifts, two fund-raising experts said in a presentation here at the 36th annual conference of the National Society of Fund Raising Executives.

Fund raisers devote most or all of their efforts to seeking gifts from Fortune 500 executives, writing proposals to large established foundations and corporate-giving offices, and recruiting board members whose families have served their institutions for years — all the while ignoring entrepreneurs who have become rich from creating businesses, said Bruce Flessner, a partner at Bentz Whaley Flessner, a fund-raising consulting company in Minneapolis.

“We’ve been sitting on the sidelines while new wealth is creating its own foundations,” said Mr. Flessner. Entrepreneurs, he said, are behind much of the growth in the assets of community foundations, and many are starting their own family foundations.

“Forget about old families who served on your board for generations,” he said. “And for those of you looking to the Fortune 500, you won’t see breakthrough giving. Corporate giving by big companies has been going down. That’s not where the action is. Entrepreneurs need to be the focus of our attention.”

In making his case, Mr. Flessner cited research showing that people who started their own businesses hold 48 per cent of the nation’s wealth, compared with 33 per cent held by corporate executives and just 10 per cent held by people whose wealth is inherited.

He said one reason that fund raisers are not tapping into new wealth is that they are too focused on traditional-style donors.

He added: “We like to go to corporate-giving offices and talk to people whose job it is to run these programs, who have nice couches for us to sit on and can say No with such grace and style.”

At the same session, Susan Luenberger, vice-president for development and marketing at Community Foundation Silicon Valley, pointed to research that her organization had conducted to help fund raisers better understand how to solicit entrepreneurs in the region (The Chronicle, September 10, 1998). The study consisted of interviews with 734 randomly selected adults in Silicon Valley, as well as with representatives of 160 households that, aside from their homes, had assets exceeding $1-million. In addition, 57 companies were surveyed about their giving.

The research found that Silicon Valley donors and entrepreneurs tend to support a small number of charitable causes, regard their gifts as an investment rather than an outright gift, and want their gifts to play a key role in helping an organization become a leader in its field, Ms. Luenberger said. Such donors, she added, have shown little interest in serving on boards, participating in clubs for donors, or having their names attached to buildings or other facilities.

“Put the Rockefellers in the philanthropy museum,” Ms. Luenberger told fund raisers. “It’s time to find new models.”

While the speakers urged fund raisers to make more efforts to find newly wealthy entrepreneurs, they conceded that the process can be very difficult. Few of the newly wealthy entrepreneurs appear in any of the reference directories commonly used by fund raisers. Mr. Flessner said that one technique that his clients have found to be successful is to make pitches to executives of companies that have recently gone public.

Even when charities can track down entrepreneurs, Mr. Flessner said, those people are so busy building their companies that they have little time for the special events or other efforts that charities concoct to establish relations with them. Some charities, Ms. Luenberger noted, now hold separate gatherings for donors who have old money and those with newer resources because the two groups do not share the same interests.

Other charities, Mr. Flessner said, have learned the hard way that entrepreneurs have little patience for long visits or presentations from charities, or for serving on boards, another way charities try to get potential donors involved in their work. A better strategy, Mr. Flessner said, is for charity executives to find a way to get themselves invited to business meetings or recreational activities, such as a golf outing with business colleagues, that the entrepreneur already attends.

Fund raisers need to push their organizations to do a better job of explaining their finances to the public, said Marion Fremont-Smith, a Boston lawyer and senior fellow at Harvard University’s Hauser Center for Nonprofit Organizations, in a speech at the meeting.

Ms. Fremont-Smith said fund raisers should take a leading role in making sure their organizations take steps to head off problems that could arise when charities are required by law either to send their informational tax return, the Form 990, to anyone who asks for it or to make it available on line. The Internal Revenue Service announced last month that as of June 8, charities will be penalized if their returns are not made easily accessible to the public (The Chronicle, April 22).

While wider dissemination of charity data could have the benefit of making organizations more accountable, Ms. Fremont-Smith said, she worries that instead there will be greater misunderstanding over charity finances. She fears that the public will have trouble understanding the numbers charities put on their tax forms and that third parties using the information could distort or slant it in a prejudicial way — leading to damaging image problems and causing charitable donations to drop.

As an example, Ms. Fremont-Smith pointed to material about celebrity-run charities recently posted by Smoking Gun, an on-line publication (http://thesmokinggun.com) that compiles reports based on documents filed with government agencies.

Smoking Gun reviewed the tax returns of charitable organizations that had been established by 40 famous people, such as Barbra Streisand, Bob Hope, and Mike Tyson.

In addition to posting pages from each organization’s informational return, the magazine’s report included a brief summary about each celebrity: “Considering his supposed billionaire status, Donald Trump’s foundation seems rather cheap,” Smoking Gun concluded, after finding that Mr. Trump’s fund gave away $78,183 in 1997. “But ‘The Donald’ looks like Mr. Moneybags compared to boxing’s Don King and Mike Tyson, whose foundations each haven’t forked over a penny in the last two years,” the magazine said.

Ms. Fremont-Smith said such publicity demonstrated “the bad side of disclosure — promoting as it does the impression that something is amiss when contributions to a foundation are not immediately passed through to other charities.”

While some of the foundations created by celebrities might have failed to follow federal rules that require them to distribute an average of 5 per cent of their assets each year, she noted that the law allows for a range of exceptions that Smoking Gun did not consider. Some funds, for example, may decide not to distribute money for one or more years so they can build up money for a special project; others, having given out much more than 5 per cent in a given year, may choose not to distribute funds the following year. Yet the people reading Smoking Gun and other such reports, said Ms. Fremont-Smith, are unlikely to understand such exceptions and may conclude that there is something questionable about most or all charity funds set up by celebrities.

To prevent such misperceptions, Ms. Fremont-Smith urged fund raisers to make sure that the data collected by the Internal Revenue Service and state regulators ultimately help non-profit groups rather than undermine their credibility.

Fund raisers and other charity officials, she said, need to remember that the mission of the Internal Revenue Service is not to protect the interests of charities.

“We must recognize,” she said, “that we are dealing with regulators who are charged with preserving the integrity of the tax system, not the integrity of the voluntary sector.”

Leaders of the National Society of Fund Raising Executives used the conference to highlight several efforts by the society to improve its image. They said that they are seeking a new name to better reflect the organization’s status in the eyes of regulators, legislators, and the general public as an international organization and an authority on philanthropy and fund raising.

As the conference got under way, the society ran an advertisement in The New York Times in which its president, Paulette Maehara, wrote an article to explain the complexities involved in determining whether a charity’s fund-raising costs are legitimate.

Aimed at donors, the piece discussed why some charities spend more than others and said that simply looking at how much an organization spends on fund raising compared with its spending on charitable programs does not always tell the whole story.

Ms. Maehara also announced at the meeting that the society is sponsoring two new research studies, one on the quality of charities’ informational tax returns and another study on charities’ fund-raising costs.

Both research studies, to be co-sponsored by other non-profit organizations such as the Urban Institute and the National Association of State Charity Officials, are not expected to be completed for at least a year.

Leaders of the National Society of Fund Raising Executives also said at the meeting that the organization will soon stiffen requirements for its certification program for senior fund raisers.

To earn an “Advanced Certified Fund Raising Executive” (or A.C.F.R.E.) credential, fund raisers must pay $1,100 and complete a lengthy application process to document their education and experience. They also must complete a written examination, submit a portfolio of fund-raising materials that they developed, and pass an oral test. Since the certification program began in 1993, 38 fund raisers have earned advanced status.

Under the policy change, fund raisers who win advanced certification after December 31, 2000, must become recertified by repeating some steps in the application procedure every three years.

Fund raisers certified before that date will be subject to the old rules and do not have to get recertified. Society officials said, however, that they hope the fund raisers who are exempt from the recertification requirement will voluntarily take steps to renew their status every three years.