Why Donors Stop Giving... A True Story

Posted January 1st, 2009 by Gena Rotstein

True story - I have a client; a small family foundation who wanted to make a donation to a medium-sized public foundation. This family foundation offered up $30,000 a year for FIVE years, totalling $150,000. The conversation began in September 2008 as of today (January 2nd) the recipient still has not made the transfer of funds possible.

Several questions arise from this situation:

What is going on internally with this charity that they cannot come back with a response (yes or no) to accepting the donation?
Should the family take the offer off the table?
Why would I even suggest putting an offer like this in front of an organization that does not have the capacity to manage the gift?
How can this charity better manage the donation?

I am no longer surprised as these stories. Here is a $150,000 sitting in funds for a foundation that has expressed a need for program support, and yet cannot seem to manage the process. Too often I hear of organizations that do not have the capacity or the mechanisms in place to process even the simplest of donations, let alone complex ones.

The internal problems and workings of an organization will reflect the external workings of the organization. It is your job, as a charitable investor to make sure that the agency has the where-with-all to accept, process, manage the investment and the relationship. This means that the organization should be able to not only accept the payment but also deliver on how you want the relationship managed. That could be from a simple thank you letter to something more complex as establishing a partnership agreement.

It is very easy to print a nice thank you card and have the Board Chair sign it. It is entirely different to be able to share the impact of that donation with the individual who invested his resources in making that program or service possible.

This can be seen two ways. If an organization cannot seem to put together a simple thank you card for a donation, how can they effectively report back to you on your donation? Or, if they have managed to put together a nice thank you card, but they cannot tell you how they spent your money, is this the best place to invest?

Should the family take the money off the table? What would you do?

Clearly the charity does not have the capacity to manage the relationship. Yet, with the limited funds they have received they have done amazing things. The family members are asking themselves, imagine how much more this organization could accomplish if they would only accept the funds put in front of them.

This organization stated that they have a very pressing need for funds. Not to stay in operation, but to secure their programs in perpetuity. They have set a fairly lofty financial target and realistic timeline to achieve that target. It is important that charities ensure that before they go out seeking funding they have the means to manage the donation. That means beyond cashing the cheque.

Beyond cashing the cheque is getting to know the investor, understanding the best ways to use the funds, having the securities in place so that while the funds are not being used they are safe (i.e. not all donations put into one investment account managed by one investment house - Madoff scenario). The time that it takes to manage a major donor is significant. If an organization does not have the internal structures to manage the relationship then they should not be seeking funds of that magnitude.

So why did I recommend this charity to begin with? Dexterity Consulting’s whole process is to weed out those organizations that do not have the capacity to effectively fulfill their mandate. I put forward this charity for several reasons:

It is unique with a proven track record of results
On a small scale it has achieved big things
It aligns with my clients values
It approaches the problem of keeping families together during time of medical crisis in a clearly thought-out and effective manner
My clients are not risk-averse and this is a small organization with obvious management challenges who are still fulfilling their mandate

Charitable Investors can help organizations by providing them with the guidance necessary for them to build up those management and capacity structures. From basic donor management systems to proper governance structures, donors have the ability to direct funds towards strengthening agencies from within. What this means though is making a long-term commitment and recognizing the risks. Social Venture Investment or Venture Philanthropy are the terms used for this type of community investing.

Whether we are choosing to acknowledge that we are full-steam ahead into a down-turning economy or not, markets are slowing. Some people are estimating that it will last between 3 and 7 years. That is a long time. Now is the time for charities to look internally and make adjustments to management systems. In Canada, in 2006 almost 90% of donations came from individuals and private foundations. This will not change even in a slowing economy. 87% of the Canadian economy is made up of family owned businesses and those families are the ones that make individual donations. As things slow down charities can take the time to really evaluate what programs work and which ones don't. They can shed some of the services that have led to mission drift and start focusing on what their purposes are. Once they focus on that, the funds will follow. Community investors are looking at the best organizations. Best is being defined as those who are taking their vision and working towards achieving the vision – not working towards following the money.