Episode 11 Transcript

Mark:                    Welcome to Unsuitable on Rea Radio, the unique financial services and business advisory show that challenges your old-school business practices and the traditional business suit culture. You’ll hear from industry professionals who think beyond the suit and tie to offer meaningful, modern solutions to help you enhance your company’s growth. I’m your host Mark Van Benschoten.

Many of you may already been dreading tax time and wondering how can you hang on to this much money as possible. “Take some money to make some money.” We all have heard that and sometimes, you have to spend it in order to save it. On this episode of Unsuitable, we are going to talk to Laura MacDonald who’s president of Benefactor Group.

Laura is a certified fundraising executive with more than 30 years of experience or decades, pick your term, in non-profit leadership fundraising and philanthropy. More than that, she brings her fresh perspective to the topic of charitable giving and how can you use it to manage your wealth. Glad to have you with us Laura.

Laura:                    Thanks.

Mark:                    Before we get started. Couple of questions, how did you get started in your business?

Laura:                    Anybody who has been in the fundraising field for as long as I have did not have a linear path. There was no college course that would get you here. There now is. I started my background as a television production in corporate communications. At one point in my career, I used that to become the creative director of a National fundraising firm. My job with that firm was to go around the country producing the video presentations and the written documentation that they would be using for those organizations to share with their donors and transpire to give. That was wonderful, it was a lot of fun and as a part of that, I very quickly develop the proclivity to understand the fundraising process to put people at ease. That then has translated into now 3 decades of working in a fundraising field with a particular skillset around communication.

Mark:                    I would say that your organization is nationally known. It’s very impressive here in Columbus, Ohio.

Laura:                    Thank you. Thank you.

Mark:                    We’ve known each other for number of years and just most impressive of what you bring too to the table. Our client said that we serve jointly. There’s something that I’d like to do for fun. I like to ride an off road motorcycle, I don’t do it very well but I enjoy it. I don’t hurt myself too frequently. People say, “Why do you like it?” And its very calming to me and people don’t understand that. I’m in the woods, I’m on a loud bike, spilling mud and smoke and I’m dirty which is very calming to me and then you get that thrill of excitement. You have to go up a hill or down the hill or I cross a log that I didn’t get through last time. You have any experiences like that?

Laura:                    For me similarly, it’s a little more bucolic but I love to go fly fishing. I grew up a little bit in the outdoors as I was growing up and so it is something that gets me back outdoors again. Similarly, I find it … When I’m fly fishing. It’s a very cerebral exercise and so I am fully absorbed. I can’t be thinking about work related things or family related things. It requires all of your attention. Therefore, it’s very calming. It’s a complete break from my day-to-day world. Then, if you are doing things right on occasion there’s a fish at the end of your line. Now, you’ve got the adrenaline rush and you are fighting the fish and I think probably like your hobby, mine is lifetime journey of discovery. You’ve never learned fly fishing, you are always learning fly fishing but it takes you also to beautiful places all over the country. Sometimes, all over the world. That has become my go-to escape.

Mark:                    That’s very exciting. Yeah. I think that my level of concentration is for safety. I’ve hit a few trees in my day and it’s because laps of concentration. I’ve find that it just distracts me from what all the trials and tribulations that’s going on with me. You’ve mentioned corporate communications and I find that to be interesting because I think that a charitable giving, it’s not just because we want to give a tax deduction.

Laura:                    Right. In fact, National Research would say that that is not the primary motivation for most donors. I think most donors predictably for an individual donor, the first engagement is of their heart. They are compelled to give because they are inspired by a story. After that happens, they are going to make their gift in the wises way that they can based on whatever their own personal and tax situation is. That’s individual donors and actually, individual donors represent more than 80% of the 358 billion dollar charitable giving market.

Mark:                    Really? What was that number again?

Laura:                    358 billion dollars given to charitable organizations in 2014. Of that amount, 80% was given by individuals.

Mark:                    Wow.

Laura:                    Another 8% came in a form of request. Individuals who are just no longer with us.

Mark:                    Sure.

Laura:                    Another 7% came in the form of closely held family foundations or donor advised funds. Individuals are actually driving 87% of charitable giving decisions.

Mark:                    Interesting.

Laura:                    In any fundraising strategy, the first place that we are looking is what is the health of the individual donor process for this organization because we know that for many individuals, it pushes them out of their comfort zone to ask another individual for a gift whereas going to a corporation or foundation doesn’t push their buttons quite so much. A lot of our works is to get people comfortable of having that conversation with the individual about their own gift.

When you look at corporations, you are beginning to see more and more of what their column strategic plans will be. There are some distinctions whether that corporation is giving through, giving directly or giving through a foundation that they’ve created. A foundation creates some boundaries as to how they can make their gifts and what they can get in return for those gifts but I think they are all looking at strategic alignment. Sometimes, it’s about how does our giving influence consumer decisions.

More and more often though we are seeing that, “How does that giving influence our workforce development?” That they know that if they are making gifts that are aligned with the values of their employees, that their employees are more likely to stick with them and to be loyal. Some of them were actually seeing them making long term strategic investments in places like community colleges because they are simply looking at demographics and realizing that the workforce in the future, they are going to need to do something to enlarge the number of folks who are going to be available …

Mark:                    I found them to be very encouraging. I mean, we try to be philanthropic here at that Rea and Associates. We have a foundation. Our offices do great things. We have a food drive that gets very competitive and it’s, I think we all feel good by participating and make it easy for people to participate. I’d like to think that we are doing it for the right reason.

Laura:                    I think, for its core. It’s got to be for the right reasons. First of all, at the end of the day. No matter how well you have strategize your giving so that you are taking tax advantage of it. It’s still costing you money. I don’t know if anybody who is on a 100% tax bracket.

Mark:                    Thank God.

Laura:                    Exactly. It is still going to cost you money to make a charitable gift. You need to be inspired by something to do that. We are really seeing two kinds of inspiration. We call it the head and the heart. There’s a whole lot written about impact philanthropy about the fact that more and more donors are just asking for outcomes. How many second graders went for the free concert series and not even outputs? How many second graders then made reading advances as result of the arts programs? They are looking for true impact. How many second graders are reading at great level when they get to third grade and therefore are much more likely to succeed and graduate. That’s a very high bar for most non-profit organizations but I think that what we are seeing is that very sophisticated donors.

Corporations and foundations and individuals who have the capacity to give very large sums, are really going down that impact path but for the vast majority. It’s really the heart. It’s what we call the warm glow theory of giving. There’s a researcher at the University of Chicago who is, his research subjects are people who give generously. He brings them to his lab. Puts them in an MRI, talks to them about their charitable gifts to see what part of their brain fire.

Mark:                    Interesting.

Laura:                    He calls it impure altruism. I prefer the warm glow. People give because they like the way it makes them feel. Because they like the way that others will perceive of them when they give. I think there’s a lot of heart and a little bit of head that the impact formula does tends to be more important when you are talking to very sophisticated donors. We can talk about why they are playing a larger and larger part in the philanthropic equation but for the majority of individuals, it’s all about the heart.

Mark:                    Did you see any problem? To me, I feel a lot of in efficiencies and exempt organizations, mission based, just duplication of services. Part of me …

Laura:                    I am going to stop you on the duplication of services.

Mark:                    Okay.

Laura:                    Because I am a bit of a contrary in view on that.

Mark:                    Okay. We like those.

Laura:                    I’m a client of Rea & Associates.

Mark:                    A great client.

Laura:                    Thank you. I faithfully pay my bills but I bet my bills would be a lot lower if there was just one big accounting firm that we all went to and we pay the flat fee. That wouldn’t be right.

Mark:                    Correct.

Laura:                    I bet my insurance premiums would be much lower if there’s only one insurance company. That my banking fees could be lower if we didn’t have all of the banks competing against one another and spending all that money on marketing.

Mark:                    A little competition.

Laura:                    A little competition is good. First of all, for most of the non-profits where we talk about duplication of services. We are talking about social services. People who provide basic needs. Food, shelter, health, mental health. My experience is, there’s plenty you need to go around in the fact that one organization might take an angle of that that’s base rooted in a faith based mission and another one, it might be based in an economic development mission. They are going to express a little bit differently. That’s healthy. Just to stop you.

Mark:                    No, I …

Laura:                    Don’t buy into the notion of philanthropic competition.

Mark:                    Okay. I always like to be educated and I learned something today on that. All right, so we don’t have duplication services or we have some?

Laura:                    Perhaps.

Mark:                    Perhaps.

Laura:                    Yeah, but what I do see is that somebody has a great idea. They want to begin a new non-profit organization to pursuit that idea. When actually, that idea could be pursued equally well within an existing non-profit organization. That there are lots of great organizations out there and that this could become a service of that organization or that at the founding moment, that organization could become the physical agent rather than necessarily having to duplicate some of the back office and enabling functions of a non-profit.

Mark:                    We have as you have mentioned, the 87% driven by individuals. Vast majority driven by the heart, not the head. Are we reaching the potential or are we giving maximum use for these contributions that’s going out there?

Laura:                    I think that is hard to measure. I’ll tell you what. I don’t think its a good measurement and that’s overhead. In fact, there’s a whole website devoted to the overhead myth.

Mark:                    I’m glad you are mentioning this.

Laura:                    Their impact is what we should be measuring. As I said, that’s a difficult thing. It can be elusive to measure impact. It’s one thing to measure impact in educational organization. There you can see all the student’s progressing. How do you measure the impact of the arts for example? It can be a little bit more elusive but I think if a donor wants to know whether or not they are getting the greatest bang for their buck. What they should be doing is looking at the overall health of the organization that they are trying to support. The other thing I was saying is if they want the biggest bang for their buck and to really leverage their gift. Make it unrestricted. A dollar that is given to an organization that is unrestricted is far more valuable than a dollar that is given to an organization and devoted to a very specific and narrow purpose.

Mark:                    I agree with you. Unrestricted, allows the organization to deploy those dollars as it’s ease but not within the kind finds as to what you might see it.

Laura:                    Exactly and it also, frankly frees up some of the resources that might have been devoted into accounting for those designated funds. I think that then as a donor, what you should be looking at is the board. At the end of the day, it’s the board that’s going to make the decisions. The board is going to approve the budget. The budget is a policy document. If you look at that board and you trust the people who are on that board, then make a non-restricted gift. You are betting on them. You are not voting with your dollars that you like the early learning program better than the housing program.

Mark:                    You mentioned overall health, I’ve heard that we need to spend every dollars that we look and need. I disagree with that philosophy. I want to donate to organizations that manage the money well, that have a surplus, that could maximize the use of that.

Laura:                    I would agree. You always see some organization that folks would rush in, Sweet Briar College, case and point where folks would rush to try to rescue it from its demise. Non-profits like everything else have a life cycle and there comes a time when it is time to hang up your spurs and call it a day. The reason that you see John Paulsen for example, investing 400 million dollars on Harvard University is because he knows Harvard is going to do great work with his money. Now, he took some heat for that. I think it is one of the donor’s choice where donor wants to give. Warren Buffett transferred most of his assets to the Gates Foundation because he knew that the Gates Foundation was extremely good about investing film tropic resources to make a difference on the ground.

I agree with you on that, I think that there are on the other end of the spectrum, there are some excesses that could also turn donors off but I think for the vast majority of organization. If you can tell your donors, “Hey, we are healthy organization. We pay our people fairly. We have a collision. We can promise you that if you give us a dollar, we can deliver on it.”

Mark:                    You mentioned before the overhead myth and I think you and I are on the same page of that, a lot of organization, that’s how they were measured. “Oh, I spent 90 cents every dollar on programs.” I offered to you that if somebody is cutting back on me overhead that you might be putting that organization at risk. You don’t have the improper internal control structure. You don’t have succession planning. You don’t have all these things that organizations need to have to sustain. Is that what you are referring to?

Laura:                    Absolutely. Absolutely. Things like a cost for a dollar raise where maybe right now, your cost for a dollar raise, you are spending 20 cents for every dollar you raise. Well, if you can up that to spending 25 cents but raise a $1.50 for it. Clearly, it’s a net gain for your organization. It’s more to the bottom line. I think it is an overly simplistic measure. I think it’s also created some bad behavior where non-profit organizations are on their IRS. 9-90, which is the informational tax return that they would file which is how people calculated overhead. They are taking things which are actually marketing activities let’s say. Which should be overhead but because they are educating the donors. They are calling a program. I’ve looked at plenty of 9-90s for a non-profit organizations that raise plenty of money and they report zero on fundraising expense.

Mark:                    On fundraising.

Laura:                    That’s not incredible.

Mark:                    Correct. To summarize but just to recap where we are, organizations need to be looking at impact with making their donation. Probably aligned maybe with their staff and making sure that they are getting a bang for the buck there. Is there any way we can increase the corporate side? 87% is just seems low to me and that’s a huge number. $358 billion?

Laura:                    358 billion dollars, corporate philanthropy represents only 5% of that. Only 5% and that includes the corporate foundations. I think that there are some ways. We look at the communities like Minneapolis, St. Paul, the twin cities where K. N. Dayton was very active for a long time and he really tried to push corporations 5% pre-tax profits and I think if you take a look at the corporations there, even though that he’s long gone and there has been some slippage. You will see that they are out performing the rest of the market. I think it requires inspired leadership from the corporate sector and say, “Hey, we are willing to do this.” I will say that there’s a roughly equal amount. I think it’s about 17 billion dollars from corporate plans be there’s a roughly equal amount that comes from corporations into the non-profit economy but in the marketing partnerships of some kind. Some sponsorship are coming in as earned revenue or cost related marketing partnerships.

I think one of the things that corporations want to see is sustainability. Why don’t more of them do challenge or matching gift campaigns? Great, because the way to make a non-profit sustainable is to have a good pipeline of renewable individual donors. Help us acquire individual donors. Make a matching …

Mark:                    Unrestricted.

Laura:                    Unrestricted and for new dollar we raise or increased dollar we raise. The Corporation will give a dollar to our organization. That’s a great incentive for the donor. Gives them even more of that warm glow we talked about and it’s a way for the corporation …

Mark:                    Without the MRI.

Laura:                    Without the MRI. That’s right. No need for any invasive medical procedures.

Mark:                    Laura, we are running out of time here. I really appreciate you talking but you and I have had conversations about this in the past and we’re both passionate about charitable giving and the impact that it can have and I do think that corporations have a role within this and obviously individuals at 87% currently, that’s a big number. Before we wrap up. We have one question we’ve asked all of our guests. If you could have one super power, what would it be?

Laura:                    I would be able to teleport.

Mark:                    Teleport?

Laura:                    I would be able to teleport.

Mark:                    To go fly fishing?

Laura:                    Well, general, there aren’t great trout streams in Ohio. There are a couple, but generally fishing places are faraway. Many of our clients are faraway. We are right now talking to a prospect in Sydney, Australia. I love being in these places but the plane rides are not much fun anymore.

Mark:                    True.

Laura:                    I would be able to teleport.

Mark:                    To port. That would be a great super power to have. That’s all we have time for today. Thank you for joining us Laura and thank you to our listeners for tuning in week after week. Want more Unsuitable? Visit our website at www.reacpa.com/podcast for past episodes and additional resources. You can always subscribe to Unsuitable on iTunes and never miss an episode. Until next time, I’m Mark Van Benschoten for Unsuitable on Rea Radio encouraging you to loosen up your tie and think outside the box.