Of course a big endowment is good and important. BUT, it might not be so positive from your donors’ perspective. Yesterday’s interesting meeting with a very special planned giving donor for a client really open my eyes again on this issue.
Stability, fiscal soundness, efficiency, consistency of leadership (in addition to mission, of course). These were all factors this donor weighed (usually from the position as a board member – realize that your board members are possibly testing your organization for potential greater giving or not) in deciding which charities will make the cut into his estate plans (big gifts from glimmer in his eye!).
Endowment? Helps a long way towards his approach but be careful warned this donor. Too large of an endowment could send the wrong signal – is your charity in the business of saving lives or feeding hungry people today, or feeding salaries of the executives in the future?
What is the ideal level of endowment? Obviously depends on the organization, the immediacy of their mission and other organizational factors, but the general gauge that emerged from our conversation yesterday was 10 times the budget. Your budget is $10 million – aim for a $100 million endowment.
Of course, this doesn’t mean you will keep everyone happy all of the time. I had a donor once contact me at a client looking for the 990 tax return to see how much we were paying our top people (he was looking at charities for a bequest). I knew this client well, and how little they paid, I thought we were in awesome shape. I sent it immediately and followed-up shortly after. I get the man on the phone and he declares that this charity is not getting his bequest! I was slightly dumbfounded – this was the most lean, efficient charity you could have imagined (less than 10% expenses to program ratio, very few employees, low salary for the executive director by any standard).
What was the problem? He saw the endowment figure – somewhere around $60 million. Well below our 10 times revenue goal. But, for this donor, it made no sense for him if the organization was sitting on that amount of money, what do they need his gift for?
Truth be told for that client – they held back a lot of money (primarily bequests) from disbursement to its prime mission (an overseas institution) over many years (an internal agreement between the two entities). They just hoped no one noticed or asked about it.
So, the last lesson is about disclosure and proper messages. Don’t just hope no one notices that your organization has a huge war chest! Be transparent! Explain why the endowment is so crucial. Explain how it works (i.e. reserves in case of emergency, annual income stream so staff can focus on mission, donor wishes, etc…). And, sometimes distribute or use the funds – for your mission and related missions (if allowed, of course).