The relationship between investors and organizations in the corporate sector seems clear. Here, Larry Johnson, development executive and author of The Eight Principles of Sustainable Fundraising (Aloha Publishing, 2011) asks whether the relationship between donors and organizations in the nonprofit sector should be any different?
OWNERSHIP—THE WORD conjures up all sorts of ideas, impressions, even emotions. In most corporate forms, the question “Who owns you?” would seem to be clearly defined and decided. The corporation organized for a commercial purpose addresses the ownership question by asking the parallel question, “Whose money is it?” Financial investors retain a stake in the corporation proportional to the magnitude of their monetary investment. The rights and privileges of stockholders are enshrined in law. Wherever the rule of law is exercised and property rights are respected, a stable social climate ensues producing the best possible environment for business to prosper and wealth to be created.
When we start speaking about the not-for-profit corporation, things somehow get cloudy and uncertain. Part of that murkiness—that uncertainty—originates from a general lack of appreciation among those in and around the nonprofit world that the not-for-profit is a corporation. With respect to its commercial cousin, the not-for-profit shares all the salient characteristics of the organizational form.
The term nonprofit itself contributes to this confusion. I believe it’s important to remember that the moniker “nonprofit” is a tax code creation for assessing taxable liability. It came from outside those organizations. Nonprofit is a descriptor of status, not a delineator of purpose or character.
Commercial ventures are evaluated on their ability to deliver on their stated commercial goals. Period. Hence the strong need to demonstrate to their investors that they have fulfilled the value promise made to them at the point of investment. Although the values of the investors in a commercial corporation are almost always more than simply monetary, the financial performance is surely the most significant measure of success and ultimate stockholder satisfaction. In this respect, the commercial enterprise clearly has an advantage over its charitable cousin. The arithmetic is unambiguous. You know when you’re successful because the stockholders are happy.
Corporations organized for a charitable purpose are public charities. Their character and mission is to be charitable in a particular way. The measure of their ultimate success is how well they execute their stated mission and in this manner they are no different from a commercial venture.
Philanthropy is the fuel that provides the necessary financial resources for a charitable corporation to execute its mission and achieve its charitable goals. Charitable investors, sometimes known as donors, provide these resources. Without them, charitable corporations simply wouldn’t exist. The smallest, most modest charity has investors at some level, even if it’s only the founder, putting their own resources into fulfilling a personal dream. This is why I say that donors “drive” philanthropy.
When a charitable corporation reaches out to potential investors, it makes a value promise to them implicitly or explicitly. The degree to which those representing the charitable organization do this with clarity to the potential investor and in congruence with the potential investor’s values is the significant determinant as to the organization’s fundraising success. But that is a subject for another time.
When charitable investors, or donors, make a philanthropic gift, they are, in actuality, making an investment. The question is: an investment in what? They are making an investment in the value proposition in the charitable corporation just as they would if they were making an investment in a commercial corporation. In the commercial case, the promise is largely a financial one: “For an investment of X, we will return to you your investment plus some amount, Y.”
For the charitable corporation the stakes are far higher than mere money, however. Philanthropic investors are not just giving of their financial resources; they are sharing their deepest-held personal values and aspirations and entrusting those to the charitable organization for safekeeping and growth.
Nonprofit organizations make a colossal mistake when they think fund-raising or, that phrase I positively loathe, “getting funded” is about money. It is not. It is about keeping trust and delivering on the promise that was made to the investor when the investment was made.
The leadership of not-for-profit corporations often compounds this error in judgment by treating financial resources as value-free and the sources of those resources as largely uninvolved. Fundraising discussions often revolve around getting gifts “unrestricted” and in how to deal with donors who are seen to be “meddlesome.” This sort of detached logic is rapidly heading to the dustbin of ideas, however. Younger philanthropists, especially those of the millennial generation, want accountability and involvement with a gift of $100. The era of power to the stockholders has arrived for both the commercial and not-for-profit sectors.
So, then, what role do governing boards play in this little drama? Note the term that is most often used to denote a member of such a committee: trustee—one who holds a trust. A trust to whom? It is a trust to those investors who have, through the investment of their values, provided the very resources that provide for the very continuance of the organization so that their values and vision can be realized. It is a trust to the donors, the investors.
In philanthropy, financial resource is the currency for much more valuable and intangible resources: the personal values and visions of the donors themselves. When the value proposition is a financial one, ownership is secured through the tangible assets of the corporation. When the value proposition is a promise of values and vision, ownership is expressed not in the tangible assets of the charitable corporation but in its fidelity to the values and visions of the investors. It is in this way that the philanthropic investors—the donors, if you please—own the charitable corporation.
“But we exist to serve our customers, those who receive our services,” you say. “These individuals are the ones who ‘own’ our organization. Moreover, it’s our leadership and staff that are setting the direction of the organization.” Yes, leadership—both executive and governing—make the ultimate decisions for the charitable corporation. In her article “Who Owns You,” published by Charity Channel Press (March 15, 2004) Caroline Oliver defines owners as “those whose interest in the organization goes beyond their own immediate personal self-interest and towards the longer-term interests of your organization as a vehicle for providing benefit for themselves and others for the foreseeable future.” A definition into which investor donors clearly fit.
Those who drink Pepsi may enjoy and benefit from a flavorful beverage. However, they do not—and cannot—lay claim to ownership of PepsiCo, unless they are also investors. The board of directors at PepsiCo keeps the corporation in trust for its investors. In the same way, governing boards of charitable organizations keep the corporation in trust for those individuals who, through their investment of the very resources that make the organization a reality, have also placed on the table their values and their vision for a better community and a better humanity.
Trustees—members of the governing boards of charitable corporations—are then held to an even higher bar of performance than those who serve in the commercial sector. Not only must they ensure the prudent and productive use of the financial resources at the organization’s disposal; they must also keep faith with the values and vision of those who provide those resources—the donors.
Unfortunately, far too often, members of nonprofit boards see their role in very narrow, often superficial, terms. Theirs is the “watchdog” role: “Don’t spend too much money.” “What was the amount of cash received for the last quarter?” “Don’t look frivolous.” “Tell the fundraisers to go out and get more money for our goals.” These are the demands and inquiries of a group that is most concerned with getting through the next period with the least amount of disruption and certainly having the meeting adjourn before lunch, all the while having someone else foot the bill. Is it any wonder why so many charitable corporations—yes, corporations—struggle to deliver on very worthy missions and goals?
The charitable organizations that are careful and deliberate about keeping faith with their investors are mindful of those that support them—and why. These are the organizations that continue to enjoy increased financial support to pursue the very value proposition they have made to their investors. Such an awareness of who “owns” the organization gives these nonprofits the stability and financial strength to move forward and prosper—the entire community benefits.
Governing boards that are focused on the investors and that feel accountable to them are keenly aware of the intangible concerns of their investors as the driver of the donors’ tangible expressions of those interests. These trustees understand their role in keeping the “trust” with those investors. It is in this way that philanthropy, in its purest and highest form, is a joining of individuals to accomplish a shared vision—not a financial transfer for the furtherance of someone’s independent goal or agenda, no matter how well intended.
The good news is that prosperity for a not-for-profit corporation is born not of size or access but of attitude. I often hear the pleas and laments from nonprofit leaders intoning the lack of resources or that “competition” for “scarce dollars” continues to subdivide an already too-small pie. Rubbish. Econometric research at the Boston College Center on Wealth under Paul G. Schervish has repeatedly demonstrated that philanthropy is elastic, not fixed.
Even very small charitable organizations with access to only modest resources accomplish great things for those that they serve. What’s their secret? Their leadership never forgets who owns the vision, the values. These trustees have discovered the beauty and synergistic power of reaching out to their investors with a shared vision— and then keeping faith on that vision.
So much of what confounds us is nomenclature. To donate is to give freely, without financial expectation. To invest is to give with the expectation of return. Philanthropists are at once both donors and investors. They give freely without an expectation of financial consideration, but they invest in what means most to them: their deeply held dreams and visions.
It is in the intangible that donors “own” the charitable organizations to which they make financial gifts and in which they invest their ideals. Like the commercial corporation, nonprofits that consistently disappoint or betray their investors don’t stay around for very long. Boards of directors of for-profit corporations are keenly aware of the stockholders, the investors. Trustees of charitable organizations will do well to remember the trust that their investors have placed in them.
About Larry Johnson
Larry C. Johnson, CFRE, believes in the power of relationships, the power of philanthropy, to create a better place and transform lives. His practice is founded in his experience that all not-for-profits can achieve both sustainable and scalable philanthropic revenue streams.
Larry is author of the award-winning book, The Eight Principles of Sustainable Fundraising; he is the Association of Fundraising Professionals’ 2010 Outstanding Development Executive and ranked in the Top 30 Fundraising Consultants in the United States by the Wall Street Business Network.
Larry can be contacted by email at email@example.com.
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