Donor’s choicest gift to a nonprofit is trust in the group’s management

Published in the March 16, 2007 edition of Columbus Business First

In past columns I wrote about how some popular forms of philanthropy need special vigilance if they are to have the intended, positive effect on nonprofits.  We focused on seed grants, matching grants, performance measurement, and the fondness for gifts to go into endowment. 

What these forms of philanthropy have in common is that they are gifts with strings attached.  While many motives for attaching strings are possible, I am most concerned that one motive is a simple lack of trust between donor and nonprofit. 

In a recent talk before fundraising professionals I was asked, “What do I do about a donor who says he trusts the current management but isn’t sure the future management will be good, so he wants to put restrictions on his gift or put it into endowment.”  The donor’s restriction was that the principal of the gift could never be spent. 

Everyone is familiar with the term fiduciary, a person who stands in a special relation of trust, confidence, or responsibility.  The word derives from the Latin word fidere, which means “to trust.”  In a nonprofit, that special responsibility is to the organization’s mission.  I would take that one step further:  The  foremost responsibility of a fiduciary is to sustain mission. 

Owner, client, confusion

Nonprofits are given special legal status because they have a mission that meets a community need that the market and the for-profit sector are not able or willing to meet.  The community and its citizens build their lives around having that mission fulfilled by the nonprofit.  They rely on that mission being sustained through good times and bad. 

Thus, a fiduciary’s duty is to see that citizens’ trust in the nonprofit’s sustainability is honored. 

Don’t donors, especially large donors, have a special relationship to their beneficiaries that rises to the level of having a fiduciary duty to use their philanthropy to sustain the nonprofit’s mission? 

John Carver brought path-breaking insights to the board-staff relationship when he examined the fiduciary role of boards of trustees.  He asked the question, “How can a group of peers be a responsible owner-representative, exercising authority over activities they will never completely see, toward goals they cannot fully measure, through jobs and disciplines they will never master themselves?  How can they fulfill their own accountability while not … infringing … on the creativity … of management?” 

Carver is famous for asking who is the owner and who is the client.  A donor can be both owner and client, making Carver’s question even more trenchant. 

As Carver points out, how can a donor possibly have greater knowledge and skill to sustain a nonprofit’s mission than the nonprofit’s managers have with their full-time, on-site, everyday involvement?  The answer to Carver’s question cannot be that donors should fulfill their accountability by attaching strings to their gifts!

Last year Jim Collins, in “Good to Great and the Social Sectors,” came to a similar insight:  Donors’ imposing their preferences can undermine the culture of discipline that enables a nonprofit to maintain the laser focus on sustaining mission that is necessary for a nonprofit to move from good to great. 

Perhaps the most effective donors are not defined by the restrictions or requirements they impose but rather by their support of the nonprofit’s mission and their trust that the nonprofit knows best how to use their gifts to address and sustain the mission.  The answer to Carver’s question surely must be that a donor fulfills his accountability by giving to the nonprofits he trusts or by engaging in committed dialogue with a nonprofit in order to establish trust. 

Trust now, later

As a manager of a nonprofit, how you raise funds, what restrictions you accept, and whether those monies go into unrestricted accounts or into endowment accounts are the most central decisions you make in carrying out your fiduciary duties.  In talking with donors, remind them that the purpose of their gift is to enhance the sustainability of your mission.  Your sustainability is best enhanced when you have the financial flexibility that only unrestricted gifts can provide. 

That brings us back to the question the fundraiser asked me the other day.  Try this answer:  When a donor says he trusts the current management but worries about how good future management will be, remind him that your nonprofit fulfilled its mission 10, 20, or 30 years ago and it is fulfilling its mission now, so what is the reason to believe that will change? 

If the donor doesn’t feel that trust, rather than just accepting restrictions on the gift, probe what is the cause of their distrust and ask them what you both can do to establish that trust.  Then make re-establishing that trust a top priority.

Down deep, the best gift that donors can give is the trust the nonprofit will use their money in the most effective manner possible. 

Allen J. Proctor was chief financial officer of Harvard University and is the author of “Linking Mission to Money, Finance for Nonprofit Board Members.”  www.proctorconsulting.org

Copyright 2007. Reprinted with permission, Business First of Columbus Inc.