Scandals and Hacker Worries in Fundraising Land

Friends,

Another scandal hit the American Red Cross. According to an article in today's New York Times, "the American Red Cross ousted its president, Mark Everson, on Tuesday after learning that he had engaged in a 'personal relationship' with a subordinate employee." For me, the juicy part was not in the salacious details (pretty cliché, though no info was provided), but that Mr. Everson was most recently Commissioner of the Internal Revenue (naturally, a Bush appointee). As much fun as this is, it's also devastating news for an organization that has ricocheted between scandals and has lost much donor trust.

I have been fascinated by the hubris demonstrated by leaders of large national philanthropies--United Way of America, Smithsonian Institution, and the American Red Cross, just to name a few where it has been customary to recruit CEOs from outside of the nonprofit community. I don't think we are doing enough within the nonprofit sector to convey to our boards that, while leadership and business management skills are essential qualities to look for in a CEO, they are subordinate to scrupulous attention to the institution's mission. Too many board members have read Good to Great without reading Jim Collins's accompanying monograph Good to Great and the Social Sectors, where he draws clear distinctions between what constitute leadership qualities in the public and private sectors. He even goes so far to say that the for-profit world would benefit from recruiting non-profit professionals who have perfected their "legislative leadership."

At a time when nonprofits are facing greater skepticism and doubt, the online fundraising world has been rattled by news that one of its largest service providers, Convio, was the victim of hacking that compromised the security and gained access to the email addresses of thousands of donors to 92 nonprofits. A New York Times article points out that most of the affected charities responded sluggishly to the news, and when they did something, it was in the form of an email notification. The article quotes experts on security who feel that the nonprofits need to do much more to notify donors and alert the public to such breaches including utilizing traditional media. Of course, most nonprofits shy away from such adverse publicity despite the fact that donors care deeply about transparency.

On a personal note, my alma mater, University of Connecticut, notified me on November 6th (one day after the breach) about the issue. The Times article doesn't identify them as one of the four nonprofits that had communicated the breach to their donors by November 16th, but UCONN sent an email (interestingly enough, "powered by Convio") that included a link to their foundation website which goes into great detail about the incident and has a very good FAQ section. I'm proud of UCONN's rapid response and feel that they are doing everything they can to keep donors up to date.

What this bodes for on-line giving remains an interesting question. While I have given online in the past, I generally enjoy the tactile pleasure of writing checks for my charitable donations. I'm probably more gun-shy now about making on-line gifts and suspect that it will take more effort on the part of nonprofits (and Convio) to demonstrate to me and other donors that it's safe.

Talk to you soon!

Bob

Do People in a Parallell Universe Make Charitable Gifts?

Friends,

I read a fascinating little snippet on the DNA Genetics website about astronomers finding a huge void in the universe. Apparently, the hole is a "billion light years across, which is roughly 10,000 times as large as our galaxy or 400 times the distance to Andromeda, the closest 'large' galaxy."

University of North Carolina at Chapel Hill physics Professor Laura Mersini-Houghton says, “standard cosmology cannot explain such a giant cosmic hole” and goes further with the ground-breaking hypothesis that the huge void is “… the unmistakable imprint of another universe beyond the edge of our own“.

I'm a moderate fan of scifi and my favorite stories (dating back to the original Star Trek) are those that relate to parallel universes. Most of them are cheesy little fantasies of meeting alternative versions of the same characters, sometimes very savage.

This led me to wonder whether fundraising is necessary in a parallel world or whether all needs are taken care of and there's no suffering. In this parallel world will the arts and public broadcasting thrive because there are enough public dollars to go around? Or maybe money is unnecessary and never even existed.

Talk to you soon!

Bob

Innovation Redux

Friends,

At the TCG Fall Forum, Peter Gelb, CEO of the Metropolitan Opera, in the event's keynote, demonstrated the extent to which the Met is willing to innovate and cultivate new audiences. In addition to showing us gorgeous footage from recent productions, he talked about how he was hired with the purpose of kicking up a lot of dust, changing old paradigms, and building a strategy of new audience development while maintaining stability with the current audience. Largely he has been successful, and not just because he has found new efficiencies in management, but because he has made opera exciting. He has taken opera to the streets--free large-screen broadcasts in Times Square (opening night of Madame Butterfly), introduced $20 rush orchestra tickets and broadcast live performances to movie screens around the world. He's brought directors from the theater world to stage operas, and he even recruited design celeb Isaac Mizrahi to create the costumes for Orfeo ed Euridice.

What has resulted is a revitalized Met. According to Bloomberg.com,

Sales during the 2006-07 season rose 7.1 percent to 810,225, said Gelb, who succeeded Joseph Volpe in August. In all, the Met sold 83.9 percent of tickets offered for its 3,800- seat opera house at Manhattan's Lincoln Center compared with 76.8 percent last season.

But, more importantly, Gelb has succeeded in ridding the Met of its stuffy image, has brought opera to the masses and, in a stroke of marketing genius designed to draw a more traditional theater crowd, ran a marketing slogan that exlaims "Great Opera is Great Theatre."

My favorite lines of his from the conference:

"The average age of our our audience five years ago was 60. The average age today is 65."

And, when describing the stilted qualities of most of the famous guest stars before his reign, "the perception was that they just came to park and bark"

Talk to you soon!

Bob

Philanthropy is Voluntary

Friends,

Just yesterday a discussion ensued on a public radio listserv about whether or not stations should require employees to contribute to the organization. Overwhelmingly the response was negative, though I noticed that many of the people posting said that their station encouraged employee contributions and even provided for payroll deduction.

I agree that employee giving is a good thing, but I'm a bit unsettled by the notion of making it compulsory or coercive. I have seen a lot of push back from employees of nonprofits, many of whom feel that the lower salaries they generally earn constitute some form of "involuntary" philanthropy. While I think that's a fallacious argument--after all, no one is forcing them to work there for less money--I also disagree with the classic nonprofit mindset that says "if we can demonstrate 100% employee contributions, it will speak volumes to our prospective major donors." I have never had a donor conversation where one of the key talking points was that every employee was a contributor. I don't think donors really care about this or that it's an especially compelling point to make. Sure, it's nice, but what major donors and foundations want to see is how generously the board supports the organization.

Sadly, in public broadcasting many boards evolved where the ethos of giving was never enculturated. We should be striving for full board giving first. If you have ever applied for a Kresge grant, you'll remember that they place primary emphasis on your board and want documentation showing that each member has stepped forward.

Talk to you soon!

Bob

Cultivating Innovation

Friends,

Are we doing enough to fund innovation in the arts?

Last weekend I attended a conference in New York City held by the Theatre Communications Group (TCG), which is the nation's service organization for nonprofit professional theater. Called the TCG Fall Forum, this annual event brings together board members, artistic directors, managers and senior staff from theaters around the country. As a trustee of a fabulous professional theater, Contemporary American Theater Festival (CATF) in Shepherdstown, West Virginia, I find it essential to attend these meetings, both to learn what other theaters and their trustees are doing to stimulate ticket and contributed income, and to gain inspiration from artists. Last year's Fall Forum fulfilled the latter, and we were privileged to hear from the Public Theatre's Oskar Eustis, dancer and choreographer Liz Lerman, and from Ed Waterstreet (in a beautifully interpreted sign language presentation) of Deaf West Theatre. This year was more cut and dry, as the main discussion was about how to fund innovation.

While the presentations were somewhat rudimentary, what I gained from them was an awareness of how most theaters are risk averse and nervous about aging audiences and how the traditional subscription model may no longer be the most effective marketing strategy. One manager suggested that we consider eliminating subscriptions and marketing departments altogether and sell individual tickets for $20.

CATF is a very daring theater, but we are facing the same challenges of filling seats and generating contributed income. Innovation and cutting-edge theater is risky, but I cannot imagine serving as a trustee of a theater that plays it safe. The other night we approved the budget. As a member of the finance committee, I can say that we asked the staff to make some very tough decisions to ensure that the spreadsheet balanced. I'm concerned that we aren't investing enough in artistic growth. Because we are in a capital campaign for a new performance space, we cannot project unrestricted contributions the way we would like. On the positive side, once our campaign is complete, our fundraising efforts for unrestricted gifts can be redoubled and we should be able to invest in artistic growth and innovation.

I'll have more to say soon about innovation, as I am concerned that public broadcasting is not investing enough in this area.

Talk to you soon!

Bob

Cover Bands?

Friends,

There's an amusing story in the Sydney Morning Herald about how cover bands are necessary but much reviled in the music scene. Artists performing original works are extended a much higher status than those who play tried and true favorites. The punchline of the article is that symphony orchestras and opera companies are just that--cover bands. And, in Australia at least, they consume a disproportionate amount of state arts funding. According to the author, it's a rare new work that ever gets produced, as classical music audiences seem to prefer the safe and the familiar.

In the U.S., where federal spending of $124 million (down from a high of $175 million in 1992) represents less than 1% of total arts philanthropy, the National Endowment for the Arts distributes most of its money to safe choices, largely due to the backlash against their funding more controversial work in the 1980s.

Traveling this fall, when I have come across public radio stations offering classical music, it's usually been from the canon of our favorite seventeenth, eighteenth and nineteenth century dead white composers, with a rare twentieth century piece (Copland, Bartok, Mahler, Gershwin), and an occasional piece by a living composer (Philip Glass). For many of those stations, it's cheaper and more efficient to carry American Public Media's excellent syndicated service Classical 24, which offers a good mix of classical music that mainly plays it safe.

In the U.S. we are rarely exposed to the leading edge of orchestral music (after all, symphony orchestras around the country are "swimming in debt and hemorrhaging audiences," to paraphrase an article in Crosscut Seattle), but I find that public radio pledge drives are the least convincing when they talk about classical music. Maybe livening up the format and playing more than "cover bands" won't bring in larger fundraising revenues, but it might validate the fact that the small amount of federal funding public radio receives is for "community service." And I believe that communities are better served through greater artistic risk.

Talk to you soon!

Bob

Aloha Oy!--More on Percentage-Based Compensation

Friends,

I'm in Honolulu visiting our client Hawaii Public Radio. It's a whirlwind trip--Sunday-Tuesday, and an all-day journey back on Wednesday. At best I had part of a rainy day to see a little bit of the place (my first visit to the state). The balance of the time is all work.

More rain! I'm touched by the concern everyone here has for me. People take it personally that it has been raining since I arrived. I have assured them that I'm fine with it. After all, as a major giving consultant, I'm something of a rainmaker.

Last night I spoke to the Hawaii Public Radio board about capital campaigns. Interestingly, as my brother Rick said in his comment on my last post, it's not unusual for board members to raise the question of percentage-based compensation. This was the case last night. After explaining the AFP line to the group, I also asked, "how would you feel about HPR if your gift of $100,000 was 'discounted' thirty or forty percent and your gift ended up being $60,000? What would that say to you the donor? What would that say to HPR's donor constituency?" There was a brief pause, and another board member said, "I never thought about it that way, but it makes perfect sense."

HPR, is a well-managed organization that strives for transparency. Donors today have increasing resources available to them (like Guidestar and Charity Navigator) to investigate the charities they support. Any nonprofit seeking major gifts or foundation funding needs to understand that donors are more savvy than ever in assessing an institution's efficiency and performance, and a big red flag is an excessively high percentage of the budget dedicated to fundraising expenses.

Talk to you soon!

Bob

AFP Ethics Code Expanded to Include Businesses

"AFPs Code of Ethical Principles and Standards of Professional Practice has been amended and expanded to apply to for-profit businesses involved with or supporting fundraising. (follow this link)"

"The changes, which include the addition of seven new standards and the alteration of one standard, now allows for-profit businesses to join AFP as members and actively promote ethical and efficient fundraising."

This announcement from AFP is most welcome. As a long-time CFRE, I have annually signed a statement that affirms my commitment to the AFP Code of Ethics. It's great to see that they are now placing pressure on businesses serving the nonprofit sector.

I am especially happy with the following amendment to the standard regarding percentage-based compensation:

"Standard 21 now reads (new language in italics): Members shall not accept compensation or enter into a contract that is based on a percentage of contributions; nor shall members accept finder’s fees or contingent fees. Business members must refrain from receiving compensation from third parties derived from products or services for a client without disclosing that third-party compensation to the client (for example, volume rebates from vendors to business members)."

I have a great deal more to say about the matter of commissions and percentage-based compensation as it especially relates to public broadcasting, but I'll save it for another post.

Talk to you soon!

Bob

Welcome!

Friends,

This is a new mode of communication for me. For many years I and members of my consulting group, MajorGiving.com, have posted articles in the "free resources" section of our website and shared our ideas about fundraising and nonprofit management through our listserv MGTalk.

This blog presents an opportunity for me to share my thoughts in a less formal way. I plan to discuss my views of the nonprofit and fundraising worlds, but also a myriad of other topics based on what I read and observe, and on my experiences.

If you find yourself reading this blog, I encourage you to add your comments and let me know what you think.

Talk to you soon!

Bob