Board Directed Endowments
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Board Directed Endowments Board Directed Endowments Document Transcript

  • BOARD DIRECTED ENDOWMENTS Technical Paper No. 40 Heritage 4Culture Publications Program, 101 Prefontaine Place S, Seattle, WA 98104-2311, (206) 296-8688, 296-8574 TTY, 1-800-325-6165 or www.4culture.org Introduction While new heritage museums and societies are still being established, many existing organizations are in the process of expanding their operations and facilities. It is apparent from a review of the available data on these activities that there is a growing disparity between the revenue needs of the field of heritage organizations and the availability of dedicated funding sources and revenue streams needed to support them. One of the typical responses to this situation among forward thinking heritage organizations is that they become increasingly involved in developing new ways to earn income, and among the array of income producing strategies being employed by them is that of establishing board directed endowments in order to provide a long term source of sustained support. Board-directed endowments are those that are established, modified, managed and/or eliminated exclusively by a resolution and/or policy elaboration by a governing board. They differ from standard or pure endowments, which are gifts of assets that come from donors with legally binding restrictions on their use. Examples of Board Directed Endowments A number of heritage organizations around King County have established governing board directed endowments, or restricted fund quasi-endowments, in recent years in order to ensure their ability to sustain operations and programs. Among them are the: • Historical Society of Federal Way • Rainier Valley Historical Society • Issaquah Historical Society • Renton Historical Society • Greater Kent Historical Society • Shoreline Historical Museum • Maple Valley Historical Society • Snoqualmie Valley Historical Society • Nordic Heritage Museum • White River Valley Museum While endowment-building strategies vary among the organizations listed above, a variety of resources are being employed to build directed endowments, including funds and assets received from: • life memberships or portions thereof • memorials & bequests • gifts of stocks, securities, insurance and real estate • other trust and interest income; and • special fundraising events & projects A number of the organizations described above started their endowments with relatively modest amounts of funds or assets. It is important to recognize that there is no standard threshold dollar
  • Board Directed Endowments Page 2 amount for establishing a board directed endowment. What matters most is a reasoned, policy- based approach to the process of developing it. Why a Board Directed Endowment? Fundraising, asset management and financial planning are among the primary responsibilities of any nonprofit governing board. An endowment is one of the traditional mechanisms for helping to secure the financial well being of nonprofit organizations around the country, and it is one of those potential income generators that any aspiring organization should consider among the fiscal goals of its long-range or strategic planning. While it may be just one of the tools for earning income, it can be a very a significant one. Experience has shown that potential donors and investors are more likely to support an organization and participate in its activities after it has achieved some measure of success. The more funding an organization is able to muster from its own resources via earned income, the more likely it is to leverage additional support from public agencies and private foundations. Funding agencies and foundations typically avoid assuming responsibility for an organization’s projects or operations, especially for those that appear overly “needy.” Success in securing grants and funding support from public or private sources is rarely based solely upon an applicant’s need. The ability to attract funding and support is more often based upon demonstrated performance and the clear articulation of a vision and goals that donors and investors find worthwhile. A well-managed financial system is often viewed as an indicator of an organization’s overall capability and investment worthiness. There are relatively few sources of operating support in comparison to those for capital grants and other types of project support. There are also few “threshold” funding agencies, i.e., those that take risks and don’t mind providing initial, “seed” or startup funding for a project or operation. Analysis of the track records of the Federal Funders Group (i.e. National Endowment for the Humanities, National Endowment for the Arts, Institute for Museum & Library Services and National Historical Publications & Records Commission) over the past quarter century in this region readily demonstrates that few of their grants have gone to new startup organizations or those organizations in rural and suburban communities with small budgets and all-volunteer staffs. A Primary Tool for Sustaining Professional Staff Very often, organizations can't rely exclusively on volunteers to achieve many of their larger or long-term goals especially as they grow in complexity and experience increased demand for services. There is also the factor of "graying" of the volunteer corps, in which some organizations find that they are not replacing volunteers as quickly as they are losing them and that the average age of volunteers on staff may be rising. While there may be more volunteerism in society overall than ever before, there are also many more venues and needs for volunteer services, especially as governmental agencies withdraw from certain types of activities, leaving the non-profit sector to pick up the slack as best it can. In short, the need for volunteers is outpacing supply. In situations where there is a shortfall of volunteer support, it typically requires some paid staffing to be able to build, coordinate and maximize the effectiveness of a volunteer team. The notion that an organization can attract ever-greater numbers of volunteers
  • Board Directed Endowments Page 3 as its needs grow, without an appropriate investment in staffing and coordination, is one of the most dangerous fallacies in the field today. It typically takes investment in professional staff development if there is to be any return in the form of enhanced fundraising capacity, greater visibility, higher professional standards, quality programming and more public participation. If organizations are to avoid staff turnover in such situations, it is also essential that funding for staff expenses be sustainable over the long run. Speculative hiring in hopes that staff members can raise their own salaries is a risky proposition at best, simply because most of the funding available is, as mentioned above, dedicated to projects rather than operational costs. In some situations, the difficulty involved with staff members writing grants to support themselves has led to drift or diversion from an organization’s primary mission and goals, administrative overload and the consequent departure of key staff members. Building paid professional staff capacity is often the key to many organizations’ long- term goals, but it is most often achieved by developing an organization's ability to pay good people what they are worth. A board directed endowment can be one of the tools employed to develop the ability to sustain staff positions. Beware the “Edifice Complex” In any organization that aspires toward major facility operation, a balance should be achieved between capital improvements and the ability to sustain staff and operations, or problems are inevitable—and potential impacts range from the mildly debilitating to the catastrophic. It is possible to overbuild to the point where the responsibilities of running a building overwhelm an organization’s capacity to provide programs and services, resulting in breaches of security, diminished research access, neglect of collections and reduced programming or open hours, because there are simply too few staff and volunteers to make ends meet. When groups get into difficulty because there are too few people to run the great edifice – that is what is known as the “edifice complex.” When it occurs, the public – and sometimes a group’s financial backers – can become restive or upset. If there are higher expectations for access and service than can be delivered, community relations problems can abound. The often-cited prediction that “if you build it they will come” is unlikely to be realized unless an organization is prepared to adequately staff and sustain a high quality level of operation over the long haul. The edifice complex is not a hypothetical situation; it is a problem that currently besets the heritage and cultural community. It is the responsibility of an organization’s governing board to avoid such pitfalls by paying adequate attention to the sustainability of its operations as well as to its facility development and project goals. A board directed endowment may be one of the tools that helps build the necessary foundation for that sustainability. Potential First Steps in Establishing a Board Directed Endowment Some organizations establish a board directed endowment as a response to an unexpected gift or bequest. Others establish them as a matter of good planning practice -- one of several long-term strategies for achieving financial stability. The following outline provides some ideas for using unrestricted asset donations, whether anticipated or not, for establishing a board directed endowment.
  • Board Directed Endowments Page 4 1) Consider the donor's wishes, if expressed. If none are conveyed, the organization may be free to move ahead as it wishes, providing due respect is shown all parties. 2) When a significant donation is received, and there is a need for an interim public relations statement until the organization sorts through its options for dealing with it, it might be prudent to make a simple acknowledgement stating that the Governing Board will consider appropriate ways of honoring the donor while providing the maximum, long-term impact for the generous gift received. Providing too many particulars, including the amount of funding involved, might not be advisable at the outset, for reasons outlined below. It may be sufficient at first to sound a note of deep appreciation, acknowledging that the gift will provide a substantial boost toward the organization's goals and suggesting that there will be a full announcement about the disposition of the gift after the Governing Board has had time to consider the best ways of managing it. 3) The Governing Board may appoint a committee to research and report on best methods and practices of asset management. Technical information about the board-directed endowment policies of other groups may then be collected, evaluated for fit, and remodeled to suit an organization's needs. A brief report to the Board may be prepared that outlines the various action alternatives and their consequences, i.e. conversion of assets, using assets to cover overhead expenses or facility development costs, and/or investment of assets in order to allow them to grow. Most donors prefer a long-term impact, rather than a short-term burn, of their investment, no matter what size a gift may be. A significant gift of assets can either be used as a band-aid or an investment, but there is greater public relations value in demonstrating that the organization is investing in its own long-term stability, and that it welcomes other gifts that will help it achieve its very worthwhile long-term goals. The occasion of receiving a significant gift of financial assets may also be an also opportunity to articulate an organization's vision. 4) If the establishment of a board directed endowment is found to be appropriate, then a resolution and administrative policies may be drafted for board approval. 5) Once a board directed endowment has been established, a donation may be re- publicized providing more particulars and characterizing the board’s decision as a completed, positive and major step forward toward the organization's vision or goals. Perhaps the least attractive alternative would be to make an announcement that an organization has come into money. That could invite speculation as to how to spend it as well as entail some public relations damage control. Summary An organization’s governing board should pay adequate attention to the sustainability of its operations as well as to its facility development and project goals. Board directed endowment building is one of the time-tested components of a financial strategy for insuring operational stability and sustainability. As with so many aspects of organizational development, endowment building most often starts on a very modest basis. Even so, “the journey of a thousand miles begins with a single step,” and many organizations are surprised at how quickly their board directed endowments build principal and attract other gifts.
  • Board Directed Endowments Page 5 Other Resources Organizations interested in pursuing this subject should consult the article Directed Endowments as Sustained Support for Museums by Steve Anderson, Charles Payton, and Keith Williams, which synthesizes some of the ideas presented at the Washington Museum Conference in June 1999. It provides some background on the board directed endowment of the Renton Historical Society which has experienced some remarkable growth in recent years. Listed below are additional sources of information on nonprofit board directed endowment building. Board Source (search: Endowment) http://www.boardsource.org Creating and Building Endowments for Small Museums by Carol Norris Vincent http://www.indianahistory.org/edu/localhistory/lhsendow.html Foundation Center / Literature of the Nonprofit Sector (search for Endowments) http://lnps.fdncenter.org/ NonProfit Times / Endowments: The Gift That Keeps Growing by Bridget Rosenberg http://www.nptimes.com/Jan01/sr2.html Information about board directed or quasi-endowments may also be found on the web sites of many universities. Additional information on other aspects of organizational management mentioned in this paper is available in Technical Papers No. 2, Professional Staff Development, No. 22 Long-Term Planning and No. 38 Nonprofit Business Plans, in this series. The Heritage 4Culture Program maintains a file of information on board directed or quasi-endowments that may be consulted by appointment at the contacts provided above. This information is available upon request in alternative formats for persons with disabilities at (206) 296-8574 TTY. By Charles Payton Rev 10/05